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US STOCKS-S&P 500, Dow set fresh records as recovery marches forward

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* Weekly jobless claims fall as expected; producer prices up

* Micron drops as MS downgrades to 'equal-weight'

* Producer prices rise at fastest pace in a decade

* Palantir rises on Q2 revenue beat, upbeat outlook (Adds post-market-close data)

By Herbert Lash

NEW YORK, Aug 12 (Reuters) - The Dow and S&P 500 jumped to record closes for a third straight day on Thursday, with mega-cap technology stocks driving the market higher as investors warmed to jobs data showing a steady U.S. economic recovery.

Apple Inc, Microsoft Corp, Amazon.com , Google parent Alphabet Inc and Facebook Inc , which account for a quarter of the S&P 500's market capitalization, led shares on the S&P and tech-heavy Nasdaq.

The Dow eked out a record close at the bell.

Tesla Inc, Nvidia Corp and Moderna Inc also rallied on a day in which more stocks declined than advanced.

"Today the S&P 500 reached another all-time high, and is at an all-time high for good reasons," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.

The fundamental backdrop is supportive of higher equity prices, Sandven said. Earnings are trending higher, interest rates are low and inflation remains moderate, he said.

The Dow Jones Industrial Average rose 14.88 points, or 0.04%, to 35,499.85, the S&P 500 gained 13.13 points, or 0.30%, to 4,460.83 and the Nasdaq Composite added 51.13 points, or 0.35%, to 14,816.26.

Traders snapped up big tech shares that had missed out on the overall market marching higher the past week, according to Tim Ghriskey, chief investment strategist at Inverness Counsel.

"The move into big tech is simply a trading opportunity. Big tech has been down for a week or so, underperforming the market pretty significantly," Ghriskey said. "There are bargain hunters coming in, jumping on those securities."

Apple added the most to the S&P, rising 2.1%, followed by Microsoft with a 1.0% gain and Tesla adding 2.0%. Growth stocks rose 0.5%, outpacing a 0.06% gain in value shares, in a reversal of a recent trend.

Healthcare and technology were the best- performing S&P 500 sectors. Energy weighed the most on the market.

The number of Americans filing claims for unemployment benefits fell again last week as the economic recovery from the COVID-19 pandemic continued.

Data on Thursday showed U.S. producer prices posted their largest annual increase in more than a decade last month, raising inflation concerns, after Wednesday's U.S. consumer price index reading indicated the pace appeared to be slowing.

The data reflect well-known supply chain challenges that will not change Federal Reserve policy, said Mike Loewengart, managing director of investment strategy at E*TRADE Financial.

"Everyone is expecting potentially tapering to begin in September," he said. "But for the most part, it would not change the conducive environment that we are currently in, for additional gains in equity markets."

Trading volume has slumped, typical of August, as a stellar second-quarter earnings season winds down. Investors are now waiting for the Fed's annual meeting in Jackson Hole, Wyoming, at month end for clues on its plans to tighten policy.

Volume on U.S. exchanges was 8.31 billion shares, compared with about 9.55 billion average for the full session over the last 20 trading days.

Micron Technology slid 6.4%, one of the biggest weights on the S&P 500, after Morgan Stanley downgraded the stock to "equal-weight."

In earnings-related moves, Baidu Inc's U.S. shares fell 3.2% even after the company posted upbeat quarterly revenue.

Palantir Technologies Inc jumped 11.4% after the U.S. data analytics firm forecast third-quarter sales above expectations.

Declining issues outnumbered advancing ones on the NYSE by a 1.18-to-1 ratio; on Nasdaq, a 1.34-to-1 ratio favored decliners.

The S&P 500 posted 45 new 52-week highs and two new lows; the Nasdaq Composite recorded 85 new highs and 148 new lows.

(Reporting by Herbert Lash, additional reporting by Devik Jain in Bengaluru; Editing by Aditya Soni, Maju Samuel and Dan Grebler)