NEW YORK: US stocks rose on Tuesday as labour cost data indicated that the Federal Reserve’s aggressive approach to taming inflation was taking hold ahead of a decision by the central bank, while gains on the Dow were limited by weak earnings updates.

US employment costs increased at their slowest pace in a year in the fourth quarter as wage growth slowed, bolstering expectations of the Fed slowing the pace of its interest rate increases.

“The report was a little lower than expected and that seemed to really spark a move in markets,” said Randy Frederick, managing director at Charles Schwab.

“It shows that the overall economy is slowing down, but it should be a positive overall because it means that the Fed’s actions to quell inflation are actually working.”

The Fed will decide on rates on Wednesday, with traders betting on a 25-basis-point hike (bps) at the end of the its two-day meeting, and a terminal rate of 4.9% in June.

Ten of the 11 major S&P 500 sector indexes were up, with consumer discretionary rising 1.2% after a 7.2% gain in General Motors Co.

The automobile conglomerate forecast stronger-than-expected earnings for 2023 and said it would cut $2 billion in costs. United Parcel Service jumped 4.2% on strong quarterly earnings, boosting the Dow Jones Transport Average index.

Capping gains on the blue-chip Dow Jones Industrial Average was Caterpillar Inc, down 4.2% after reporting a drop in quarterly profit on higher manufacturing costs, while McDonald’s Corp dropped 2.4% on warnings of short-term inflationary pressures.

“With additional earnings coming in this week, participants are a little concerned that the market got a little bit ahead of itself and so are a little cautious heading into the Fed meeting,” said Robert Pavlik, senior portfolio manager at Dakota Wealth.

At 12:05 p.m. ET, the Dow Jones Industrial Average was up 62.08 points, or 0.18%, at 33,779.17, the S&P 500 was up 22.13 points, or 0.55%, at 4,039.90, and the Nasdaq Composite was up 97.78 points, or 0.86%, at 11,491.59.

PulteGroup Inc jumped about 9%, lifting the PHLX Housing index to a 10-month high, after its quarterly earnings surpassed Wall Street expectations aided by higher house prices.

The S&P 500 and the Dow are set to end January higher for the first time since 2019, while the Nasdaq is up more than 9% as appetite for growth stocks bounced back.

Hopes of a downshift in the Fed’s policy has eased worries of pressured valuations for the rate-sensitive group.

As many as 165 S&P 500 companies have reported earnings for the fourth quarter. Earnings are expected to have fallen 2.4% for the quarter, compared with a 3% decline expected a day earlier, according to Refinitiv data.

Advancing issues outnumbered decliners by a 3.81-to-1 ratio on the NYSE and by a 2.88-to-1 ratio on the Nasdaq.

The S&P index recorded five new 52-week highs and no new low, while the Nasdaq recorded 62 new highs and 15 new lows.

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