By Shreyashi Sanyal
(Reuters) - A rally on Wall Street lost strength on Thursday after the S&P 500 index touched a record high, powered by the Federal Reserve's signals that it could cut interest rates as early as July to combat growing risks to global and domestic growth.
The U.S. central bank left rates unchanged at the end of its two-day June policy meeting on Wednesday, but pledged to "act as appropriate" to sustain economic health.
Wall Street's main indexes have gained in recent weeks on expectations of a rate cut and hopes of a revival of trade talks between the United States and China at the Group of 20 meeting next week in Japan.
The benchmark S&P 500 index, which has risen about 7% so far in June, hit an intraday record high of 2,956.20 on Thursday.
"It was always going to be difficult for the Fed to live up to high market expectations. While the bar was set high, policymakers appear to have cleared it with ease while also leaving themselves with plenty of outs," said Craig Erlam, senior market analyst at OANDA in London.
"It's clear that the G20 meeting next week will either give them (the Fed) that out or make the decision to cut quite straightforward."
A more-than-expected dovish Fed led to U.S. treasury bond yields tumbling, with the benchmark 10-year yields dropping below 2% for the first time in more than 2-1/2 years.
Financial stocks dropped 0.34%, while the energy index jumped 2.01%, the most among the 11 major S&P sectors, as oil prices surged over 5% on renewed tensions in the Middle East after Iran shot down a U.S. military drone.
Stocks pared some gains after President Donald Trump's comment "You'll find out" when asked how the United States will respond to Iran.
At 12:56 p.m. ET, the Dow Jones Industrial Average was up 120.53 points, or 0.45%, at 26,624.53 and the S&P 500 was up 12.90 points, or 0.44%, at 2,939.36.
The Nasdaq Composite was up 28.58 points, or 0.36%, at 8,015.91.
The technology sector rose 0.89%, boosting the S&P 500 by the most, with Oracle Corp leading the charge.
Oracle's shares jumped 7.37% after the business software maker forecast current-quarter profit above estimates.
Cruise operator Carnival Corp slid 9.41%, the most among S&P companies, after cutting its profit forecast for the year on the Trump administration's sudden ban on cruises to Cuba and weakening demand in Europe over political uncertainty.
Rivals Royal Caribbean Cruises Ltd and Norwegian Cruise Line Holdings Ltd dropped more than 3% each.
Buoying sentiment was data which showed the number of Americans filing applications for unemployment benefits fell more than expected last week, pointing to underlying labor market strength despite a sharp slowdown in job growth in May.
Advancing issues outnumbered decliners by a 2.49-to-1 ratio on the NYSE and by a 1.31-to-1 ratio on the Nasdaq.
The S&P index recorded 95 new 52-week highs and three new lows, while the Nasdaq recorded 118 new highs and 35 new lows.
(Reporting by Shreyashi Sanyal and Aparajita Saxena in Bengaluru; Editing by Arun Koyyur and Sriraj Kalluvila)