US STOCKS-Wall Street flat as rising yields pressure megacap stocks

Updates to mid-afternoon trading

By Medha Singh and David French

Dec 26 (Reuters) - Wall Street's main indexes were unchanged on Thursday, amid light trading the day after the Christmas break, as rising yields limited gains in equities, while investors looked for a year-end boost from the so-called Santa Claus rally.

Yields on U.S. government bonds inched higher across the board, with the yield on the benchmark 10-year Treasury note US10YT=RR hitting its highest since early May at 4.64% earlier in the session. By mid-afternoon, the yield has dipped slightly to 4.58%.

Higher yields are traditionally seen as negative for growth stocks, as it raises the cost of their borrowing to fund expansion. With markets increasingly dominated by the megacap technology stocks known as the Magnificent Seven, crimping their performance - especially in lieu of other market catalysts - will put downward pressure on benchmark indexes.

Among those megacap stocks, six were trading in negative territory, led by the 2.1% decline by Tesla TSLA.O. Amazon.com AMZN.O slipped 0.6%, while Meta Platforms META.O shed 0.7%.

"Now we're at an inflection point on the Treasury yield, especially the 10-year ... Any move higher and it tends to create equity market weakness," said George Cipolloni, portfolio manager at Penn Mutual Asset Management.

At 1:48 p.m. Eastern time, the S&P 500 .SPX dipped 2.52 points, or 0.04%, to 6,037.52 points, while the Nasdaq Composite .IXIC lost 4.92 points, or 0.02%, to 20,026.21. The Dow Jones Industrial Average .DJI rose 4.73 points, or 0.01%, to 43,301.76.

Markets in Europe, London and parts of Asia were closed on Thursday.

The three main indexes have hit multiple record highs this year on hopes of a lower interest rate environment and the prospects of artificial intelligence boosting corporate profits.

However, U.S. stocks have hit a speed bump in the final month of the year following an election-led rally in November as investors assess the Federal Reserve's projection of fewer interest rate cuts in 2025.

Latest data showed the number of Americans filing new applications for jobless benefits dipped to the lowest in a month last week, consistent with a cooling but still healthy U.S. labor market.

"We have come off of high interest rate policy and there's a good chance we'll still be cutting (rates) more. For the next year, it should be a positive outlook (for markets), unless we see signs the data is softening," said Joe Tigay, portfolio manager of the Rational Equity Armor Fund.

Markets are in a seasonally strong period - called the "Santa Claus rally" - a pattern attributed to low liquidity, tax-loss harvesting and investing of year-end bonuses.

The S&P 500 has gained an average of 1.3% in the last five trading days of December and the first two days of January since 1969, according to the Stock Trader's Almanac.

Currently, both the Dow Jones Industial Average and Nasdaq Composite are on four-session winning runs, and the S&P 500 has finished higher in three straight sessions.

Cryptocurrency-related stocks were down after bitcoin BTC= declined 3.9%. MicroStrategy MSTR.O fell 3.7%, MARA Holdings O> slipped 2.5%, and Coinbase Global COIN.O was off 2.1%.

A majority of the 11 S&P sectors were trading lower, led by the 0.6% decline in consumer discretionary .SPLRCD. The energy index .SPNY dipped 0.4%, tracking marginal weakness in U.S. crude prices. O/R

(Reporting by Medha Singh and Purvi Agarwal in Bengaluru and David French in New York; Editing by Anil D'Silva and Aurora Ellis)

((Medha.Singh@thomsonreuters.com; +91 80 6210 0592; X, formerly Twitter: @medhasinghs;))