US STOCKS-Wall St flat as Microsoft rallies

* GE falls after lowering forecast

* Microsoft (Euronext: MSF.NX - news) at record high on strong quarterly report

* AT&T (Sao Paolo: ATTB34F.SA - news) drags telecoms on report of deal with Time Warner (Xetra: AOL1.DE - news)

* Dow down 0.09 pct, S&P down 0.05 pct, Nasdaq (NasdaqGS: NDAQ - news) up 0.22 pct (Updates to mid-afternoon trading, changes byline)

By Chuck Mikolajczak

NEW YORK, Oct (Shenzhen: 000069.SZ - news) 21 (Reuters) - The S&P 500 and the Dow were little changed and the Nasdaq advanced on Friday, as a record-setting rally in Microsoft and earnings from McDonald's helped offset a fall in energy and healthcare names.

General Electric (Euronext: GNE.NX - news) also weighed on the market, as the industrial conglomerate posted results that topped expectations but cut its full-year revenue target to send shares down 0.9 percent after it touched an 8-month low of $28.33.

A stronger dollar, which touched its highest level since early February, also weighed on sentiment as it could dent the earnings of large multinationals.

"The dollar is likely to continue to firm a little bit, that creates a headwind for earnings growth for certain parts of the economy," said David Joy, chief market strategist at Ameriprise Financial in Boston.

The energy index was off 0.9 percent, while health declined 0.8 percent. Johnson & Johnson (NYSE: JNJ - news) , off 1.1 percent and Merck (LSE: 0O14.L - news) , down 1.2 percent, were the biggest drags among healthcare names. Schlumberger (LSE: 0CT7.L - news) , the world's No. 1 oilfield services provider, weighed on the energy index as it lost 3.5 percent after its quarterly results.

But gains in Microsoft and McDonald's on the back of their strong quarterly reports helped keep losses in check.

Microsoft was up 4.6 percent at $59.90 after hitting all-time high of $60.45, while McDonald's was up 3.3 percent at $114.20.

The Dow Jones industrial average fell 16.3 points, or 0.09 percent, to 18,146.05, the S&P 500 lost 0.98 points, or 0.05 percent, to 2,140.36 and the Nasdaq Composite added 11.28 points, or 0.22 percent, to 5,253.12.

The S&P 500 is up 3.8 percent for the week, on track for its best week in four.

Telecoms, down 2.4 percent, were lower for a second straight session. AT&T lost 3.2 percent on news the wireless carrier was in advanced talks to buy Time Warner , whose stock surged 7.5 percent.

In other deal news, Reynolds American (NYSE: RAI - news) jumped 14.5 percent after British American Tobacco offered to buy the 58 percent of the tobacco company it does not already own in a $47 billion takeover.

Declining issues outnumbered advancing ones on the NYSE by a 1.13-to-1 ratio; on Nasdaq, a 1.38-to-1 ratio favored decliners.

The S&P 500 posted seven new 52-week highs and three new lows; the Nasdaq Composite recorded 41 new highs and 35 new lows. (Reporting by Chuck Mikolajczak; Editing by Dan Grebler)