Wall Street's main indexes rose Tuesday, as investors took comfort from a softer-than-expected producer inflation report and weighed what it could mean for the Federal Reserve's monetary policy trajectory this year.

A Labor Department report showed the producer price index, or wholesale inflation, rose 3.3% on an annual basis in December 2024, compared with the 3.4% rise economists polled by Reuters had expected. On a monthly basis, the index rose 0.2%.

The yield on the benchmark 10-year Treasury note eased marginally, but at 4.79%, it remained close to its 14-month high, keeping a lid on equity gains.

Some megacaps rose, with Nvidia climbing 1.2% and Amazon.com adding 1.4%. Eight of the 11 S&P 500 sectors gained, led by consumer discretionary's 1.4% rise, as Tesla jumped about 4%.

Traders now see the Fed delivering 29.4 basis points worth of rate cuts by the end of the year, according to data compiled by LSEG - lower than the 50-bps reduction the central bank had forecast for this year.

"It was a positive report for the overall equity market and for the bond market," said Robert Pavlik, senior portfolio manager at Dakota Wealth.

However, the increase in gasoline and food prices was a little disconcerting, according to Pavlik.

The consumer price index report, expected on Wednesday, will now be closely watched.

At 09:50 a.m. ET, the Dow Jones Industrial Average rose 131.20 points, or 0.31%, to 42,428.32, the S&P 500 gained 21.84 points, or 0.37%, to 5,858.06, and the Nasdaq Composite gained 122.50 points, or 0.64%, to 19,209.39.

The domestically focused small-cap Russell 2000 index rose 1%.

Quarterly reports from big banks are also highly anticipated later this week, with the lenders expected to report stronger earnings, fueled by robust dealmaking and trading. An index tracking banks rose 0.5%.

Markets also weighed a report which said that President-elect Donald Trump's incoming administration was considering gradual tariff hikes, including a plan that could increase import duties by 2% to 5% a month.

Comments from Kansas City Fed President Jeffrey Schmid and New York Fed President John Williams, who are voting members on the Federal Open Market Committee, are expected later in the day.

Wall Street's main indexes have witnessed a downward trend since early December, with the price-weighted Dow down more than 5% from the record high it hit last month, and the benchmark S&P 500 not far from a two-month low.

The central bank's cautious stance on monetary policy easing this year, along with subsequent batches of upbeat economic data, raised investor concerns that U.S. inflation could be running high.

Trump is expected to take office on Jan. 20 and his policy proposals on tariffs and immigration are widely anticipated to fuel inflation.

Applied Digital jumped 16% after a report said Macquarie would take a 15% stake in it and also invest up to $5 billion in the company's AI data centers.

Eli Lilly slid 8.2% after saying it expects sales of a popular weight-loss drug and related diabetes treatment to miss estimates in the fourth quarter. The healthcare sector lost 1.3%.

Advancing issues outnumbered decliners by a 3.46-to-1 ratio on the NYSE, and by a 2.23-to-1 ratio on the Nasdaq.

The S&P 500 posted six new 52-week highs and one new low, while the Nasdaq Composite recorded 27 new highs and 41 new lows.