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* Fed rate cut debate in view as U.S. job market cools

* S&P 500 tech sector hits record high

* All three major indexes set for weekly gains

* Macy's up on report Arkhouse, Brigade Capital raise buyout offer

* Indexes: Dow flat, S&P up 0.34%, Nasdaq up 0.79%

July 5 (Reuters) - The tech-heavy Nasdaq and the benchmark S&P 500 jumped to record highs on Friday, as most megacap stocks hit all-time highs following latest data that signaled U.S. labor market weakness and pulled Treasury yields lower.

Microsoft, Meta Platforms, Amazon.com and Apple advanced 1%-4% to hit record highs.

This pushed information technology to an all-time high, and prompted the S&P 500 communication services to emerge as the top sector performer, rising 2.1% to its highest level since 2000.

Labor Department data showed U.S. job growth slowed marginally in June, and the unemployment rate rose to an over 2-1/2-year high, while wage gains slipped.

The data supported the easing labor market narrative, following ADP Employment report and jobless claims earlier this week, giving a fresh boost to bets of a September interest rate cut.

Investors expect the data could open the path to a more active debate on interest-rate cuts when the Federal Reserve next meets later this month.

Odds of the U.S. central bank delivering its first rate cut in September jumped to 79% from 66% seen before the data, according to CME's FedWatch Tool.

"The employment data is not indicative of an imminent recession but supports the soft-landing view. The sharp decline in temporary may help portend future weakness in the labor market this summer," said Jack McIntyre, portfolio manager at Brandywine Global.

"This clearly increases the Fed's confidence level that policy rates are too restrictive, and they need to cut."

Other data earlier this week also pointed to the U.S. economy losing steam, prompting market participants to strengthen their bets for multiple rate cuts this year.

That helped the S&P 500 and the Nasdaq notch record closing highs during Wednesday's holiday-shortened trading, even as trading volumes have remained light throughout the week due to the U.S. Independence Day holiday on Thursday.

At 12:14 p.m. ET, the Dow Jones Industrial Average was down 5.31 points, or 0.01%, at 39,302.69, the S&P 500 was up 18.75 points, or 0.34%, at 5,555.77, and the Nasdaq Composite was up 143.53 points, or 0.79%, at 18,331.83.

All the three major Wall Street indexes remain on course for weekly gains. With second-quarter earnings on the horizon, it remains to be seen whether Wall Street's rally will broaden beyond major megacap stocks and whether earnings for those companies can continue to support steep valuations.

Big banks such as Goldman Sachs, Bank of America , Wells Fargo, JPMorgan & Chase fell between 1% and 2%, pushing the S&P 500 banks index down 1.6%.

Macy's on Friday jumped 9.4% after a report said Arkhouse Management and Brigade Capital raised their bid to buy the department store chain for about $6.9 billion.

Declining issues outnumbered advancers for a 1.21-to-1 ratio on the NYSE and for a 1.30-to-1 ratio on the Nasdaq.

The S&P index recorded 16 new 52-week highs and eight new lows, while the Nasdaq recorded 33 new highs and 129 new lows. (Reporting by Ankika Biswas and Lisa Mattackal in Bengaluru; Editing by Saumyadeb Chakrabarty, Shounak Dasgupta and Shinjini Ganguli)