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By Abigail Summerville and Sukriti Gupta
(Reuters) -The three major stock indexes closed higher on Tuesday, aided by energy stocks, while investors saw reason for optimism for a trade breakthrough between the U.S. and China after President Donald Trump delayed tariffs for Canada and Mexico.
New 10% U.S. tariffs on Chinese imports took effect on Tuesday, which China countered with levies on U.S. goods. It was unclear when the country's leaders would talk and Trump said he was in no hurry.
Energy stocks led the S&P gains, rising 2.18%, while utilities and consumer staples lost ground.
Trump had said over the weekend he would impose a 25% tariff on goods from Mexico and Canada, but agreed to a 30-day pause on Monday in return for border and crime concessions from both countries.
"The president was so quick to offer a 30-day stay of execution to Mexico and Canada, so you get the idea that maybe what he's really trying to do is embrace a quick declaration of victory which doesn’t change much from a trade perspective," said Sam Stovall, chief investment strategist at CFRA Research.
"Investors have been breathing a sigh of relief today and we’ll see if a month from now they can continue to breathe that sigh of relief."
Strong corporate earnings have also buoyed investor optimism. Of the 211 companies in the S&P 500 that have reported earnings for the fourth quarter, 76.8% reported above analyst expectations, according to an S&P earnings scorecard.
Palantir shares jumped 24% after the data analytics company forecast first-quarter and annual revenue above Wall Street estimates.
Meanwhile, Alphabet rose 2.6% ahead of its quarterly results, but posted revenue that missed expectations after the close, partly due to a slowdown in its cloud computing business. The stock was down more than 7% in after-market trading.
The Dow Jones Industrial Average rose 134.13 points, or 0.30%, to 44,556.04, the S&P 500 gained 43.31 points, or 0.72%, to 6,037.88 and the Nasdaq Composite gained 262.06 points, or 1.35%, to 19,654.02.
Biotechnology firm Illumina dropped 5.3%, while PVH Corp, the holding company for brands including Calvin Klein, slipped nearly 1% after China placed the companies on its "unreliable entity list".
Three Federal Reserve officials warned on Monday that trade tariffs carried inflation risks, with one arguing that uncertainty over the outlook for prices called for slower interest-rate cuts than otherwise.
A Labor Department report showed U.S. job openings stood at 7.6 million in December, compared to an estimated 8 million, according to economists polled by Reuters.
In earnings-driven moves, PepsiCo fell 4.5% after it forecast annual profit below expectations and missed quarterly revenue estimates.
Estee Lauder plummeted 16.1% after the cosmetics company posted another weak quarter amid demand weakness and announced job cuts.
Merck dropped 9.1% after the drugmaker said it would pause shipments of Gardasil to China through at least mid-year, as continued weak demand for the HPV vaccine there is expected to hurt the company's 2025 revenues.
PayPal fell 13.2% after the digital payments giant's operating margin shrank in the fourth quarter.
Advancing issues outnumbered decliners by a 2.81-to-1 ratio on the New York Stock Exchange. There were 121 new highs and 61 new lows on the NYSE.
On the Nasdaq, 3,035 stocks rose and 1,323 fell as advancing issues outnumbered decliners by a 2.29-to-1 ratio.
Volume on U.S. exchanges was 13.39 billion shares, compared with the 15.53-billion average for the full session over the last 20 trading days.
(Reporting by Abigail Summerville in New York and Sukriti Gupta in Bengaluru; additional reporting by Shashwat Chauhan in Bengaluru; Editing by Devika Syamnath, Pooja Desai and Rod Nickel)
