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US STOCKS-Nasdaq rises over 1% as dip in yields supports megacaps

(For a Reuters live blog on U.S., UK and European stock markets, click or type LIVE/ in a news window)

* U.S. Senate approves bill on climate change, drug costs

* Nvidia drops as slump in gaming demand hits Q2 revenue

* Tyson Foods down on quarterly profit miss

* Palantir drops on forecast cut

* Indexes up: Dow 0.78%, S&P 0.86%, Nasdaq 1.29% (Updates price, data to open)

By Bansari Mayur Kamdar and Aniruddha Ghosh

Aug 8 (Reuters) - The Nasdaq led U.S. stock indexes higher on Monday as a pullback in Treasury yields boosted megacap growth stocks after last week's blockbuster jobs data sparked a tech selloff on expectations of sharp rate hikes by the Federal Reserve.

The focus this week will be on consumer prices data on Wednesday.

The S&P 500 has bounced back 13% from its mid-June lows, but investors fear that signs of persistent inflation this week could further bolster the Fed's case for aggressive monetary policy tightening.

"While it's clear the Fed needs to continue tightening policy, there are still about six weeks until the next meeting and we remind investors that economic data can change very quickly," said Robert Schein, chief investment officer, Blanke Schein Wealth Management.

"The CPI data will help to confirm if the Fed's tightening efforts have been successful in starting to tame inflation or if continued Fed tightening is needed."

U.S. rate futures have priced in a 68.5% chance of a 75-basis-point hike at the Fed's September meeting, up from about 41% before payrolls data on Friday beat market expectations.

Megacap growth and technology stocks rose in early trading, with Tesla up 5.2%. The U.S. electric-car maker signed contracts worth about $5 billion to buy materials for their batteries from nickel processing companies in Indonesia, according to a CNBC report.

High-growth stocks such as Apple Inc and Amazon.com Inc, whose valuations are vulnerable to rising bond yields, gained as U.S. Treasury yields pulled back from sharp highs in the previous session.

The benchmark 10-year yield declined to 2.77% as investors continued to assess an unexpectedly strong jobs report from Friday.

"Stocks don't need good data, they need softer yields, as softer yields push their valuations higher," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The recovery in equities since July was mostly due to the easing of U.S. yields on the back of growing recession expectations and partly due to the better-than-feared earnings reports, Ozkardeskaya added.

Chipmaker Nvidia Corp fell 4.6% on saying it expects second-quarter revenue of about $6.70 billion, down 19% from the prior quarter, largely hurt by weakness in its gaming business.

Meanwhile, the U.S. Senate on Sunday passed a sweeping $430 billion bill intended to fight climate change, lower drug prices and raise some corporate taxes.

Signify Health Inc jumped 14.8% on a media report that CVS Health Corp was looking to buy the health technology company.

At 9:50 a.m. ET, the Dow Jones Industrial Average was up 256.40 points, or 0.78%, at 33,059.87, the S&P 500 was up 35.81 points, or 0.86%, at 4,181.00, and the Nasdaq Composite was up 163.05 points, or 1.29%, at 12,820.61.

Palantir Technologies Inc dropped 13.2% after the data analytics software company lowered its annual revenue forecast as the timing of some large government contracts remained uncertain.

Tyson Foods Inc fell 8.9% on missing quarterly profit expectations.

Advancing issues outnumbered decliners for a 4.96-to-1 ratio on the NYSE and a 3.43-to-1 ratio on the Nasdaq.

The S&P index recorded seven new 52-week highs and 29 new lows, while the Nasdaq recorded 70 new highs and seven new lows. (Reporting by Bansari Mayur Kamdar and Aniruddha Ghosh in Bengaluru; Editing by Shounak Dasgupta)