US STOCKS-Wall St gains after encouraging inflation data with Fed next

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U.S. labor cost growth slows in fourth quarter

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McDonald's, Caterpillar slip after earnings

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Exxon, GM, UPS rise after their results

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Fed decision on interest rates on Wednesday

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By Lewis Krauskopf, Johann M Cherian and Shreyashi Sanyal

NEW YORK, Jan 31 (Reuters) - Major U.S. stock indexes closed higher on Tuesday as labor cost data encouraged investors about the Federal Reserve's aggressive approach to taming inflation a day ahead of the central bank's critical policy decision.

Investors also digested a full plate of earnings reports, including share-price gains in Exxon Mobil Corp and United Parcel Service Inc following their results, countered by declines in Caterpillar Inc and McDonald's Corp.

U.S. labor costs increased at their slowest pace in a year in the fourth quarter as wage growth slowed, Labor Department data showed. The U.S. central bank on Wednesday is expected to hike the Fed funds rate by 25 basis points, following a 2022 in which the Fed aggressively boosted rates to control soaring inflation.

The labor cost data is "indicating that maybe what the Fed has done is working and ... we’re rounding the corner on interest rate hikes," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

According to preliminary data, the S&P 500 gained 59.39 points, or 1.48%, to end at 4,077.16 points, while the Nasdaq Composite gained 190.99 points, or 1.68%, to 11,584.55. The Dow Jones Industrial Average rose 371.04 points, or 1.10%, to 34,088.13.

The S&P 500 posted its first increase for the month of January since 2019, following a brutal 2022 in which the benchmark index sank 19.4%.

Aside from the Fed's rate decision on Wednesday, Chair Jerome Powell's news conference will be scrutinized for whether the rate-hiking cycle may be coming to a close and for signs of how long rates could stay elevated.

"Jerome Powell and team are probably looking at this easing of financial conditions that has happened over the last month, and we will see if they try to push back against it to any extent," said Mona Mahajan, senior investment strategist at Edward Jones. "I don’t think they would want markets to move up too far, too fast either."

In earnings news, Exxon Mobil shares rose after the oil major posted a $56 billion net profit for 2022, setting not only a company record but a historic high for the Western oil industry.

United Parcel Service shares climbed after its quarterly profit topped estimates, while General Motors Co shares jumped after it forecast stronger-than-expected earnings for 2023.

Caterpillar shares sank as the machinery maker's fourth-quarter earnings slid by 29%. McDonald's shares dropped after the burger chain warned inflation will weigh on margins in 2023.

A busy week for markets will also include reports in coming days from Apple Inc, Amazon.com Inc and Alphabet Inc, central bank meetings in Europe and the monthly U.S. employment report. (Reporting by Lewis Krauskopf in New York, and Johann M Cherian and Shreyashi Sanyal in Bengaluru Editing by Maju Samuel and Matthew Lewis)