US STOCKS-S&P 500, Nasdaq climb as Apple hits record high

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Palo Alto gains on S&P 500 index inclusion

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Apple climbs ahead of developer conference

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Indexes: Dow down 0.25%, S&P up 0.22%, Nasdaq up 0.46%

(Updates prices throughout; adds fresh analyst comment, shares of Spotify, Tesla)

By Sruthi Shankar and Shristi Achar A

June 5 (Reuters) - The S&P 500 and the Nasdaq rose on Monday, as Apple scaled an all-time peak and investors weighed up chances of the Federal Reserve pausing interest rate hikes at its upcoming policy meeting.

Apple Inc shares rose 1.8% to touch an all-time high ahead of its annual software developer conference later in the day, where the iPhone maker is widely expected to announce a new mixed-reality headset.

Other growth stocks also rose, with Alphabet Inc gaining 1.8% and Amazon.com Inc adding 0.9%.

U.S. stocks rallied on Friday after a report showed that wage growth moderated in May, raising hopes that the central bank could skip a rate hike next week, while investors welcomed a Washington deal that avoided a catastrophic debt default.

Traders have priced in a nearly 80% chance that the Fed will hold interest rates at its June 13-14 policy meeting, according to CME Group's Fedwatch tool, though they expect another hike in July.

"We are now waiting for that next major data point and to determine whether the Fed is going to be skipping or pausing or hiking," said Thomas Hayes, chairman at Great Hill Capital LLC.

A stronger-than-expected earnings season and hopes of the Fed pausing its aggressive monetary tightening cycle have boosted U.S. equity markets in recent months, with the rebound putting the S&P 500 on track to close 20% above its October 2022 closing lows.

A survey from the Institute for Supply Management showed the U.S. services sector barely grew in May as new orders slowed, pushing a measure of prices paid by businesses for inputs to a three-year low, which could aid the Fed's fight against inflation.

"It is a bit of a concern because we're very close to that expansion-contraction threshold. It is certainly adding to the uncertainty as to whether we will be slipping into a recession or not," said Sam Stovall, chief investment strategist at CFRA Research.

At 12:02 p.m. ET, the Dow Jones Industrial Average was down 84.58 points, or 0.25%, at 33,678.18, the S&P 500 was up 9.23 points, or 0.22%, at 4,291.60, and the Nasdaq Composite was up 60.32 points, or 0.46%, at 13,301.08.

Palo Alto Networks Inc climbed 5.5% as the cybersecurity firm looks set to replace Dish Network in the S&P 500 index. Dish shares fell 1.0%.

Big U.S. banks slipped after the Wall Street Journal reported that U.S. regulators were preparing to tighten rules for large banks, which could include raising their capital requirements by 20% on average.

Tesla Inc gained 1.6% after the electric vehicle maker's sales of China-made cars in China jumped in May.

Declining issues outnumbered advancers for a 1.56-to-1 ratio on the NYSE and for a 1.35-to-1 ratio on the Nasdaq.

The S&P index recorded 14 new 52-week highs and two new lows, while the Nasdaq recorded 70 new highs and 32 new lows. (Reporting by Sruthi Shankar and Shristi Achar A in Bengaluru; Editing by Vinay Dwivedi and Anil D'Silva)