(Adds new quote, updates with mid-afternoon trading figures) * S&P 500, Nasdaq hit record highs * Flash PMI data mixed, COVID worries hurt outlook * Oil flat * U.S. dollar, U.S. treasury yields rise NEW YORK, July 23 (Reuters) - The S&P 500 and Nasdaq indexes hit record highs on Friday after a rocky week in which investors fretted over rising COVID-19 cases, spurred by the more contagious Delta variant, while U.S. Treasury yields rose before a Federal Reserve meeting next week. Megacap tech stocks helped drive main U.S. indexes up again, with the S&P 500 and Nasdaq on track for closing at record highs. Yields on U.S. Treasuries were also up, as was the dollar, with investors eyeing next week’s Federal Reserve meeting, where the U.S. recovery and the Fed’s support for the economy will be in focus. “We’re closing out the week on a very nice trade, and it’s being driven by earnings primarily and earnings specifically in stocks that speak to the consumer which is not a new story but it’s a story that adds momentum to the trade in the second half of the year,” said Peter Kenny, founder of Kenny & Co LLC, the parent company for Strategic Board Solutions and Kenny’s Commentary, a subscriber-based political and economic newsletter. Despite its decline, oil was set to end the week little changed. At mid-afternoon, the Dow Jones Industrial Average rose 217.79 points, or 0.63%, to 35,041.14, the S&P 500 gained 42.9 points, or 0.98%, to 4,410.38 and the Nasdaq Composite added 155.56 points, or 1.06%, to 14,840.16. Investors have been assuming “things will improve, travel will increase,” said Steve Massocca, managing director at Wedbush Securities. “There are concerns about the Delta variant. “If that thesis is thrown into jeopardy, it put a hitch in the ‘giddy up’ in the market,” he added. Some parts of the United States are implementing mask mandates again due to new cases, while others have not, leading to confusion. U.S. business activity grew at a moderate pace for a second straight month in July amid supply constraints, suggesting a cooling in economic activity, a report from data firm IHS Markit showed on Friday. IHS Markit said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to a four-month low of 59.7 from 63.7 in June. A reading above 50 indicates growth in the private sector. The Dow Jones Industrial Average rose 237.61 points, or 0.68%, to 35,060.96, the S&P 500 gained 37.39 points, or 0.86%, to 4,404.87 and the Nasdaq Composite added 115.07 points, or 0.78%, to 14,799.66. Positive corporate earnings helped the stock market. American Express Co jumped 1.7% after posting second-quarter profit that beat expectations. Social media firms Twitter Inc and Snap Inc gained 3.8% and 24.5%, respectively, after their upbeat results. The dollar index rose 0.085%. The yield on 10-year Treasury notes hovered around 1.3%, or almost 17 basis points higher than a five-month low set on Tuesday, but was still at the low end of a recent range. The benchmark note traded up 1.8 basis points to 1.285%. Financial markets have swung from one direction to another this week as investors try to assess what the surging Delta variant means for the world economy. After recording its steepest one-day drop since May on Monday, the S&P 500 stock index went on to post the biggest one-day jump since March a day later. It is set to end the week higher. Currency, bond and commodities markets have seen similar gyrations. “Equity markets are signaling some symptoms of being tired after a long rally and recognize the peak growth environment,” said Antonio Cavarero, head of investments at Generali Insurance Asset Management. “But in the short-term, real yields are still too low to provide an alternative, so the evolution of what happens next depends on COVID and the macro data.” Financial market volatility was expected to continue, given the resurgent Delta variant and economic uncertainty. “Uncertainty has increased again with the pandemic,” said Pascal Perrone, a fixed income portfolio manager at Eric Sturdza Investments in Geneva. “I don’t think there will be a closing of economies to the extent we saw last year, but we don’t know.” Reporting by Jessica DiNapoli; additional reporting by Dhara Ranasinghe and Wayne Cole in Syndey; Editing by Ana Nicolaci da Costa, Pravin Char, Dan Grebler and Raissa Kasolowsky Our Standards: The Thomson Reuters Trust Principles.