US STOCKS-Trade optimism, Fed rate-cut expectation sends S&P 500 to record

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* S&P 500 at all-time high, Nasdaq inches closer to record
* Microsoft rises on Pentagon contract win
* Tiffany surges on LVMH's $120 per share offer
* Dow up 0.49%, S&P 500 up 0.56%, Nasdaq up 1.01%

(Updates to market close)
By Chuck Mikolajczak
NEW YORK, Oct 28 (Reuters) - The S&P 500 hit a record high
on Monday, while the Nasdaq fell just short of its lifetime high
touched in late July as a more civil tone between the United
States and China lifted hopes for a possible trade deal and
investors looked toward a Federal Reserve rate cut later this
week.
Microsoft Corp MSFT.O shares climbed 2.46%, making the
stock among the biggest boosts to each of three major indexes
after the technology giant won the Pentagon's $10 billion cloud
computing contract, beating out Amazon.com Inc AMZN.O .
After rising as much as 0.71% to 3,044.08, the benchmark S&P
closed up 0.56% at 3,039.34, topping the record high of 3,025.86
hit on July 26, while the Nasdaq ended the session less than 5
points below its closing high. The Dow Jones Industrial Average
ended less than 1% away from its record closing level.
President Donald Trump said on Monday he expected to sign a
significant part of a trade deal with China ahead of schedule
but did not elaborate on the timing, building on optimism from
Friday when Washington said it was "close to finalizing" some
parts of a trade deal. Economic data shows the trade war between the world's two
largest economies has begun to take a toll on both countries,
leading to worries about a global slowdown.
Global central banks have responded by easing monetary
policy. The Federal Reserve is expected to follow that trend at
its two-day policy meeting beginning on Tuesday, with high
expectations that it will cut interest rates for a third time
this year.
"After we finish earnings season and get through this Fed
meeting, people will be looking to the trade deal," said Walter
Todd, chief investment officer at Greenwood Capital in
Greenwood, South Carolina. "Importantly, as you watch the
economic numbers come in here and globally between now and year
end, you want to continue to see incremental positive sequential
changes. You want to get some confirmation that in fact growth
has bottomed and has started to improve."
The Dow Jones Industrial Average .DJI rose 132.25 points,
or 0.49%, to 27,090.31, the S&P 500 .SPX gained 16.79 points,
or 0.56%, to 3,039.34 and the Nasdaq Composite .IXIC added
82.87 points, or 1.01%, to 8,325.99.
The outlook for a quarter percentage point cut in U.S.
borrowing costs have jumped to 94.1% from 49.2% last month,
according to CME Group's FedWatch tool.
The third-quarter earnings season has managed to ease some
concerns related to the impact of trade tensions on corporate
profits, with over 78% of the 204 S&P 500 companies that have
reported so far surpassing profit expectations, according to
Refinitiv data. Still, third-quarter earnings are expected to
show a decline of 2%.
Investors are waiting for earnings from heavyweights this
week such as Apple Inc AAPL.O , Starbucks SBUX.O and Merck &
Co Inc MRK.N .
Chipmakers, which have acted as a proxy for trade tensions
with China, gained 1.75% on Monday. The technology .SPLRCT ,
healthcare .SPXHC and communication services .SPLRCL sectors
gained more than 1% each.
Among other stocks, AT&T Inc T.N rose 4.28% after the U.S.
wireless carrier said it would add two new board members and
consider selling off up to $10 billion worth of non-core
businesses next year. Tiffany & Co TIF.N surged 31.63% after Louis Vuitton owner
LVMH LVMH.PA made a $120 per share offer to buy the U.S.
luxury jeweler. Advancing issues outnumbered declining ones on the NYSE by a
1.28-to-1 ratio; on Nasdaq, a 1.83-to-1 ratio favored advancers.
The S&P 500 posted 39 new 52-week highs and no new lows; the
Nasdaq Composite recorded 115 new highs and 52 new lows.