US STOCKS-S&P 500, Nasdaq ride higher on Tesla gains

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* Tesla shares rise as profit tops expectations

* Energy stocks lead sectoral declines

* AT&T drags down communication services sector

* Indexes up: Dow 0.10%, S&P 0.62%, Nasdaq 1.01% (Adds comments, updates prices throughout)

By Shreyashi Sanyal

July 21 (Reuters) – The Nasdaq and the S&P 500 rose on Thursday as gains in electric automaker Tesla following its strong quarterly results helped offset a slide in telecom and energy shares.

Tesla surged 9.3%, while telecom shares tumbled after AT&T Inc cut its cash flow forecast saying some subscribers were delaying bill payments and energy stocks slipped on weak crude prices.

Tesla’s profit benefited from price increases for its cars and helped offset production challenges. Upbeat reports from the carmaker and streaming giant Netflix Inc have boosted megacap growth stocks that have been under pressure from rising interest rates.

“Is it possible that Tesla provides a short term rally? Yes, absolutely,” said Giuseppe Sette, president of the quantitative research firm Toggle.

“However, it seems likely if we are truly in an age of liquidity withdrawal and quantitative tightening, rallies on high-momentum stocks like Tesla might not be secular or cyclical, but just rather short-term.”

The S&P 500 technology sector gained 1.1%, while communication services index fell 0.5%. AT&T shares plunged 7.2% and rivals Verizon Communications Inc and T-Mobile US Inc dropped nearly 2.7% each.

Falling oil prices hit the S&P 500 energy sector, which shed 2.6% to lead declines across the 11 major sectors.

Market participants are now anxiously waiting for the Federal Reserve meeting next week where policymakers are expected to raise interest rates by 75 basis points.

Rising inflation also led the European Central Bank to belatedly join global peers in a rate-hike cycle with an aggressive 50-basis point increase.

The Fed rate decision next week will be followed by the crucial second-quarter U.S. gross domestic product data, which is likely to be negative again.

By one common rule of thumb, two quarters of negative GDP growth would mean the United States is in a recession.

In the latest signs the U.S. economy is slowing, the number of Americans filing new claims for unemployment benefits rose to the highest in eight months and a closely watched gauge of factory activity slumped this month.

“We’ve got a combination of the Fed with the expectation that they’re going to hike 75 basis points and the macroeconomic environment that has been weakening significantly,” said Michael Green, chief strategist at Simplify Asset Management.

“The markets are much more focused on those dynamics and against all that we’ve sold off 20% on a year-to-date basis. They’re clearly reflecting a lot of concern for all of these issues.”

At 12:36 p.m. ET, the Dow Jones Industrial Average was up 32.94 points, or 0.10%, at 31,907.78, the S&P 500 was up 24.53 points, or 0.62%, at 3,984.43 and the Nasdaq Composite was up 120.34 points, or 1.01%, at 12,017.99.

Advancing issues outnumbered decliners by a 1.09-to-1 ratio on the NYSE and by a 1.17-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and 29 new lows, while the Nasdaq recorded 13 new highs and 29 new lows. (Reporting by Shreyashi Sanyal and Aniruddha Ghosh in Bengaluru; Editing by Arun Koyyur)