* Microsoft surges on better-than-expected results
* S&P tech sector hits highest level since 2000
* Disney drops on rating downgrade
* Indexes up: Dow 0.22 pct, S&P 0.43 pct, Nasdaq 1.04 pct (Updates to early afternoon)
By Tanya Agrawal and Anya George Tharakan
July 20 (Reuters) - U.S. stocks rose on Wednesday, with the Dow and the S&P 500 hitting fresh records, as Microsoft’s strong results reinforced optimism about the health of quarterly earnings.
Microsoft surged 6.9 percent to $56.75, providing the biggest boost to the three major indexes, after its results handily beat expectations on strong cloud growth.
Also pushing up technology stocks was Cisco, up 2.2 percent at $30.56. The technology index rose 1.46 percent to its highest level since 2000.
Morgan Stanley was up 2.2 percent at $28.83 after its profit topped analysts’ estimates, rounding off upbeat results from the six biggest Wall Street banks. Still, the financial sector was flat.
Six of the 10 major S&P sectors were higher, with the defensive sectors - utilities, consumer staples and telecoms - down 0.3 to 0.5 percent.
These defensive sectors have powered the stock market’s record-setting rally so far and now investors are keeping a sharp eye on corporate earnings to see if other sectors can help sustain the momentum.
“The market has been rallying on the expectation of good earnings with some companies even providing decent forecasts,” said Thomas Wilson, managing director of wealth advisory at Brinker Capital.
“What we’ve seen is a market rally that has been led by defensive sectors such as telecom, but now we’re seeing the market move up on cyclical sectors like technology.”
At 12:42 p.m. ET (1642 GMT) the Dow Jones industrial average was up 40.23 points, or 0.22 percent, at 18,599.24, easing from a record intraday high of 18,622.01.
The S&P 500 was up 9.27 points, or 0.43 percent, at 2,173.05. It had hit an all-time intraday high of 2,175.63.
The Nasdaq Composite was up 52.61 points, or 1.04 percent, at 5,088.98., set for its best day in nearly two weeks.
Wilson said for the market to sustain its momentum, earnings would need to beat expectations and the economy would also have to show signs that it is doing well.
Second-quarter earnings estimates have eased. Profits at S&P 500 companies are now expected to fall by 3.8 percent, less than the 4.5 percent decline estimated earlier, according to Thomson Reuters I/B/E/S.
One of the notable drags on the market was Disney, down 1.3 percent at $98.21 after Stifel downgraded the stock.
Intel, eBay and American Express are scheduled to report results after the bell.
Advancing issues outnumbered decliners on the NYSE by 1,985 to 910. On the Nasdaq, 1,907 issues rose and 824 fell.
The S&P 500 index showed 42 new 52-week highs and no new lows, while the Nasdaq recorded 86 new highs and 15 new lows. (Reporting by Tanya Agrawal; Editing by Savio D‘Souza)