Dec 16 (Reuters) – The Dow fell on Wednesday as worries about the economic impact of the COVID-19 pandemic offset optimism over a stimulus package, with investors awaiting the Federal Reserve’s outlook on the U.S. economy later in the day.

Flows into heavyweight technology stocks supported the S&P 500 and pushed the Nasdaq to a record high, as the sector’s resilience through the virus outbreak spurred continued buying.

The S&P 500 airlines index (.SPLRCALI) fell 1.8% after J.P. Morgan issued multiple downgrades in the sector, citing valuations.

Southwest Airlines Co (LUV.N) fell 1.7% after flagging a higher cash burn in the fourth quarter, as well as increased trip cancellations in December. read more

Data showed U.S. retail sales fell 1.1% last month from October, as new coronavirus infections and decreasing household income weighed on spending. read more

U.S. congressional leaders reported substantial progress toward a spending bill late on Tuesday, while a string of media reports suggested a deal to release more money into the economy was imminent. read more

“What we really have is a definitive tug of war between the virus news and the vaccine news, and the tiebreaker for that has really fallen on the shoulders of Congress to get more stimulus out,” said Art Hogan, chief market strategist at National Securities in New York.

The Fed is expected to keep lending rates at near-zero and signal their staying there for the foreseeable future at the conclusion of their meeting later in the day. Also in focus is an update on the central bank’s bond-buying program.

“The market is going to be looking at the (Fed’s) bond-buying program. So while we get an overall dovish communiqué, the key focus will be if the Fed is going to indicate any pullback in using its tools,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

While a mix of low interest rates and increased liquidity has brightened the outlook for equities, COVID-19 headwinds have sobered near-term expectations, despite the recent launch of a vaccination program.

At 12:12 p.m. ET, the Dow Jones Industrial Average (.DJI) was down 46.79 points, or 0.15%, at 30,152.52, the S&P 500 (.SPX) was up 6.61 points, or 0.18%, at 3,701.23. The Nasdaq Composite (.IXIC) was up 49.22 points, or 0.39%, at 12,644.28.

Twitter Inc (TWTR.N) rose 3.2% after J.P. Morgan upgraded the stock to “overweight”. The brokerage expects the social media company to stage a significant rebound in online advertising following a pandemic-fueled decline.

Marijuana producers Aphria Inc (APHA.TO), and rival Tilray Inc (TLRY.O) gained 1.5% and 21.6%, respectively, after the two companies agreed to combine their operations and create the largest cannabis producer by sales.

Declining issues outnumbered advancers for a 1.14-to-1 ratio on the NYSE and a 1.04-to-1 ratio on the Nasdaq.

The S&P recorded 29 new 52-week highs and no new low, while the Nasdaq recorded 149 new highs and 13 new lows.

Reporting by Ambar Warrick and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta

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