* Morgan Stanley rises as profit beats expectations
* CSX forecast miss weighs on Union Pacific, Kansas City Southern
* Vertex at record high on positive cystic fibrosis treatment data
* Indexes up: Dow 0.12 pct, S&P 0.35 pct, Nasdaq 0.59 pct (Updates to early afternoon)
July 19 (Reuters) - The Nasdaq and the S&P were trading at record levels in early afternoon on Wednesday, powered by technology stocks, while gains on the Dow were capped by a sharp drop in shares of IBM.
IBM fell 4.7 percent to a one-year low after the company's quarterly revenue came in below expectations. The stock was the biggest drag on the Dow and the S&P 500.
The S&P tech sector has been the best performing sector this year despite concerns about stretched valuations as investors look for growth sectors immune to policy uncertainties.
"At least in the second quarter and for the next quarter technology is the only sector that will see double-digit growth," said Tom Cassidy, chief investment officer at Univest Wealth Management Division.
"If you look at the sector, it isn't all that overvalued compared to the broader S&P index, except for a few names."
Microsoft and Facebook were among the top-three boosts to the S&P and the Nasdaq. They are due to report results this week and next.
Netflix's stellar results had propelled the Nasdaq to close at a record high on Tuesday, helping the index post its longest streak of gains since February 2015.
At 12:38 p.m. ET (1638 GMT), the Dow Jones Industrial Average was up 25.36 points, or 0.12 percent, at 21,600.09, the S&P 500 was up 8.83 points, or 0.35 percent, at 2,469.44.
The Nasdaq Composite was up 37.60 points, or 0.59 percent, at 6,381.91.
Nine of the 11 major S&P 500 sectors were higher, with the energy index and health sector leading the advancers.
Vertex Pharmaceuticals jumped as much as 26.3 percent to an all-time high after the company reported positive results for its cystic fibrosis treatment. The stock was the biggest boost on the S&P and the Nasdaq.
Investors will continue to focus on quarterly earnings to see if high valuations are justified in the face of mixed economic data, tepid inflation and policy gridlock in Washington.
Analysts estimate an 8.7 percent rise in second-quarter earnings and a 4.6 percent increase in revenue for the S&P 500 companies from a year earlier, according to Thomson Reuters I/B/E/S.
Morgan Stanley rose 2.1 percent after the Wall Street bank reported better-than-expected profit and bond trading revenue declines that were modest compared with arch-rival Goldman Sachs'. Goldman was down 0.5 percent.
CSX fell 6.5 percent after the third-largest U.S. railroad operator's forecast missed expectations. Other railroad companies such as Union Pacific fell 2 percent, while Kansas City Southern edged down 0.7 percent.
Advancing issues outnumbered decliners on the NYSE by 2,057 to 750. On the Nasdaq, 1,852 issues rose and 906 fell. (Reporting by Tanya Agrawal; Editing by Arun Koyyur)