US STOCKS-Facebook weighs on Nasdaq and S&P, but trade optimism boosts Dow

* Facebook set for biggest ever daily pct slump after margin warning

* Amazon drops ahead of quarterly results

* US-EU trade respite boosts industrials

* Chipmakers gain on strong earnings reports from AMD, Xilinx

* Dow up 0.5 pct; S&P down 0.3 pct; Nasdaq down 1 pct (Updates to late afternoon, changes byline, adds NEW YORK to dateline)

NEW YORK, July 26 (Reuters) - Facebook's slump set the Nasdaq on pace for its biggest drop in a month, but industrial stocks rose after the United States and the European Union said they would negotiate on trade.

Facebook Inc shares dived 19.6 percent, set for their biggest ever one-day percentage drop, after the social media giant forecast years of lower profit margins. The decline in Facebook shares weighed on the S&P 500 technology index , which dropped 1.7 percent.

Shares of Amazon.com Inc, another member of the so-called FANG group of momentum stocks, fell 2.9 percent. Amazon, which is scheduled to report quarterly results after the bell on Thursday, was the second-biggest drag on the Nasdaq and S&P after Facebook.

Shares of Twitter Inc, scheduled to report its quarterly results on Friday, slid 3.9 percent.

But while the Nasdaq and the S&P 500 slumped, the Dow rose, in part on the strength of industrial stocks. Industrials, which have been a bellwether of trade tensions, were lifted after U.S. President Donald Trump and the European Commission President Jean-Claude Juncker agreed to work to resolve U.S. tariffs on steel and aluminum and Europe's retaliatory duties.

"Yesterday, there was a divergence between the Dow and the Nasdaq, and you're continuing to see that today," said Shawn Cruz, manager of trader strategy at TD Ameritrade in Chicago. "Facebook is such a big component of the Nasdaq. A sudden reversal can have a chilling effect."

The Dow Jones Industrial Average rose 121.25 points, or 0.48 percent, to 25,535.35, the S&P 500 lost 8.7 points, or 0.31 percent, to 2,837.37 and the Nasdaq Composite dropped 82.45 points, or 1.04 percent, to 7,849.79.

Another drag on the S&P and Nasdaq was Biogen Inc, whose shares tumbled 11.9 percent as trial data from its Alzheimer's drug failed to impress investors.

McDonald's Corp shares dipped 1.8 percent after the fast-food chain missed U.S. same-store sales estimates for the first time in at least two years.

Chipmakers, however, were a bright spot amid Thursday's declines. The Philadelphia SE Semiconductor Index rose 1.7 percent.

Shares of Advanced Micro Devices Inc jumped 13.7 percent and Xilinx Inc shares climbed 10.2 percent after both companies reported robust quarterly results.

Shares of Qualcomm Inc gained 6.7 percent after the chipmaker pulled its $44 billion bid for NXP Semiconductors NV upon failing to win Chinese regulatory approval. NXP shares dropped 5.7 percent.

Supervalu Inc shares surged 65.0 percent after United Natural Foods Inc agreed to buy the supermarket operator in a $2.9 billion deal. United Natural Foods shares sank 16.2 percent, however.

Advancing issues outnumbered declining ones on the NYSE by a 1.44-to-1 ratio; on Nasdaq, a 1.25-to-1 ratio favored advancers.

The S&P 500 posted 52 new 52-week highs and five new lows; the Nasdaq Composite recorded 110 new highs and 66 new lows. (Reporting by April Joyner; Additional reporting by Amy Caren Daniel in Bengaluru; Editing by Shounak Dasgupta and Susan Thomas)