US STOCKS-Nasdaq gains as megacap stocks outperform

Updates to mid-afternoon

By Lisa Pauline Mattackal, Purvi Agarwal and Carolina Mandl

Oct 25 (Reuters) - The Nasdaq rose on Friday, driven by megacap shares, as Treasury yields slipped from the week's high ahead of quarterly results from some of Wall Street's biggest companies next week.

"There's a lot of moving pieces right now, especially because of where we are in the election cycle, but we think earnings have been pretty good overall," said Gustaf Little, senior portfolio manager at Allspring Global Investments.

The benchmark 10-year Treasury note yield rose slightly to 4.216%, but eased off the 4.26% high earlier in the week.

The so-called "Magnificent Seven" group of interest rate-sensitive technology stocks rallied. Chip heavyweight Nvidia NVDA.O gained 0.5%, briefly overtaking Apple AAPL.O as the world's most valuable company based on its shares.

Tesla TSLA.O shares rose 1.63%, a day after surging 22%. Apple AAPL.O gained 0.28% and Microsoft MSFT.O was up 0.64%.

However, the Dow slumped on a loss in banking shares, with Goldman Sachs GS.N down 2.4%, and a 3% fall in McDonald's MCD.N as the fast-food chain copes with an E. coli outbreak linked to its hamburgers.

Continued uncertainty around the U.S. election has also made investors cautious, though markets have started pricing in a second Donald Trump administration in recent weeks.

"Banks have rallied as Trump's odds (of winning) increased, so it seems investors are taking some profits," said Michael Rosen, chief investment officer at Angeles Investments.

As of 2:12 p.m. the Dow Jones Industrial Average .DJI fell 312.79 points, or 0.74%, to 42,061.57, the S&P 500 .SPX lost 8.35 points, or 0.14%, at 5,801.51 and the Nasdaq Composite .IXIC rose 79.80 points, or 0.43%, to 18,495.28.

Equities have been unsettled this week by a rapid rise in yields as bets on rate cuts by the Federal Reserve unraveled on expectations of a stronger economic outlook.

"The Fed perhaps got a little too dovish ahead of the data. ... The growth and inflation numbers don't necessarily justify easing behavior," said Arnim Holzer, global macro strategist at Easterly EAB Risk Solutions.

Investors are still pricing in another 25-basis-point rate cut at the Fed's November meeting and about two rate cuts by the end of the year, LSEG data showed.

The week starting Oct. 28, the final stretch before the Nov. 5 U.S. presidential election, is crucial for Wall Street. This is when results from megacap tech firms including Alphabet GOOGL.O, Apple AAPL.O and Microsoft MSFT.O are due, along with the October U.S. nonfarm payrolls report.

"With such high valuations ... at this point, these high growth tech companies need to confirm both AI (artificial intelligence) growth and execution. They need to show and deliver," Holzer said.

Capri Holdings CPRI.N slumped 48.4% after a U.S. judge blocked a pending merger between the fashion holding company and handbag maker Tapestry TPR.N. Shares of Tapestry rose 12.59%.

Regional lender New York Community Bancorp NYCB.N dropped 9.57% after reporting its fourth straight quarter of loss , primarily due to its commercial real estate loans.

Only three of the 11 S&P sectors were in the green: communications services, information technology and consumer discretionary.

Declining issues outnumbered advancers by a 1.49-to-1 ratio on the NYSE. There were 165 new highs and 39 new lows on the NYSE.

The S&P 500 posted 30 new 52-week highs and one new low while the Nasdaq Composite recorded 73 new highs and 74 new lows.

(Reporting by Lisa Mattackal and Purvi Agarwal in Bengaluru; Editing by Pooja Desai, Saumyadeb Chakrabarty, Maju Samuel and Richard Chang)

((LisaPauline.Mattackal@thomsonreuters.com))