US STOCKS-S&P 500, Nasdaq turn higher as Senate passes Trump's tax cut bill

By Sabrina Valle

NEW YORK, July 1 (Reuters) - The S&P 500 turned higher on Tuesday afternoon after a weak start, as the Senate's passage of U.S. President Donald Trump's tax package had investors weighing the bill's stimulative effects against its multi-trillion dollar cost.

The S&P 500 and the Nasdaq dropped during the morning at the first day of the third quarter, following record highs on Monday, when managers tweaked their portfolios to look more attractive at quarter-end.

Stocks, however, reversed course after the Republican-controlled U.S. Senate passed Trump's tax and spending bill on Tuesday, signing off on a massive package that could boost the economy. The bill now heads back to the House for final approval.

By 2:12 p.m. ET (1612 GMT), the Dow Jones Industrial Average .DJI rose 433.90 points, or 0.98%, to 44,528.67, the S&P 500 .SPX gained 1.03 points, or 0.02%, to 6,205.98 and the Nasdaq Composite .IXIC lost 111.57 points, or 0.55%, to 20,258.17.

"The markets are preparing for a boatload of stimulus with an already healthy economy, which makes it even more confusing," said Rich Bernstein, CEO of Richard Bernstein Advisors.

Tesla shares were hit by a renewed spat between CEO Elon Musk and Trump, while economic data backed the U.S. central bank's patient stance on rate cuts.

Tesla TSLA.O dropped 4.5% after Trump threatened to cut off the billions of dollars in subsidies that Musk's companies get from the federal government. Musk had revived his criticism of Trump's wide-ranging tax cut and spending bill.

The blue-chip Dow got a boost from healthcare stocks such as UnitedHealth UNH.N and Amgen AMGN.O, and was just about 600 points away from its all-time high touched in December.

Data showed U.S. job openings increased unexpectedly in May, suggesting labor market resilience despite trade and economic uncertainties. U.S. Treasuries fell in response, pushing the 2-year yield US2YT=RR to a near one-week high. US/

Earlier in the day, Federal Reserve Chair Jerome Powell reiterated the U.S. central bank plans to "wait and learn more" about the impact of tariffs on inflation before lowering rates, again setting aside Trump's demands for immediate and deep rate cuts.

The Institute for Supply Management (ISM) said its manufacturing PMI nudged up to 49.0 last month from a six-month low of 48.5 in May, slightly above economists' forecast of 48.8.

Market focus now shifts to Thursday's nonfarm payrolls report, which could help recalibrate bets for a rate cut as soon as July.

Money markets are pricing in a 21.2% likelihood for a July rate cut and see about 64 basis points worth of cuts by the end of this year, per LSEG data.

Shares of U.S.-based casino operators rose after Macau reported a rise in June gambling revenue. Wynn Resorts WYNN.O and Las Vegas Sands LVS.N rose 8.4% each, while MGM Resorts International MGM.N added 7.3%.

Advancing issues outnumbered decliners by a 1.85-to-1 ratio on the NYSE and a 1.11-to-1 ratio on the Nasdaq.

The S&P 500 posted 18 new 52-week highs and no new lows while the Nasdaq Composite recorded 63 new highs and 53 new lows.