* S&P 500, Dow hit new intraday highs
* Investor focus now on earnings, valuations
* Allergan up on Teva deal update
* Indexes down: Dow 0.08 pct, S&P 0.17, Nasdaq 0.25 pct (Updates to early afternoon)
By Yashaswini Swamynathan
July 13 (Reuters) - U.S. stocks took a breather on Wednesday, with investors turning their focus to corporate earnings reports to justify valuations following a three-day record-setting rally.
A strong U.S. jobs report on Friday, easing political tension in Japan and Britain and increased prospects of central banks providing stimulus post Britain’s vote to leave the European Union, calmed nerves and boosted faith in equities.
The S&P hit a record high for the third consecutive day on Wednesday. However, the three major U.S. indexes struggled to sustain momentum as investors looked for new catalysts.
“Markets are digesting their recent gains and are somewhat directionless. I think that it will be hard for us to go up much from here unless there are some positive surprises,” said Daniel Kern, chief investment strategist at TFC Financial Management in Boston.
“There is nervousness around current valuations in the U.S. and anxiety about second-quarter earnings.”
The S&P 500 is currently trading at 17.3 times forward earnings, compared with its 10-year average of 14.7, according to StarMine data.
While second-quarter earnings of S&P 500 companies are expected to fall 5 percent, along the same lines as the first, growth is expected to occur throughout the second half of 2016.
Another boost to the stock markets has been a hesitance by the U.S. Federal Reserve to raise interest rates in the near term. The Fed at 2 p.m. ET will release its so-called Beige Book, a collection of remarks on the health of the economy, which investors will parse to see if fundamentals remain strong.
At 12:31 p.m. ET (1631 GMT), the Dow Jones Industrial Average was down 14.45 points, or 0.08 percent, at 18,333.22, easing slightly after hitting a record 18,390.16.
The S&P 500 was down 3.57 points, or 0.17 percent, at 2,148.57. It hit a record of 2,156.45.
The Nasdaq Composite was down 12.37 points, or 0.25 percent, at 5,010.45, barely hanging onto its gains for the year. The index on Tuesday turned positive for the first time in 2016.
Five of the 10 major S&P indexes were higher. The gains were led by the traditionally defensive telecom services, utilities and consumer staples sectors, which held back in the past couple of days.
The energy index dropped 1.4 percent after a steep fall in crude prices.
Allergan rose 2.3 percent to $245.2 after Teva said it expected its $40 billion to buy Allergan’s generics business would close “at any time”.
JetBlue rose 3.1 percent to $18.61 after reporting an 11.6 percent rise in June passenger traffic.
Declining issues outnumbered advancing ones on the NYSE by 1,728 to 1,183. On the Nasdaq, 1,641 issues fell and 1,088 advanced.
The S&P 500 index showed 49 new 52-week highs and no new lows, while the Nasdaq recorded 106 new highs and 11 new lows. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Savio D’Souza)