U.S. stocks climbed on Tuesday as strong corporate earnings and evidence of tame inflation in March countered a rise in the price of oil to a record high.

Merrill Lynch & Co. Inc. shares rose after the largest U.S. brokerage firm posted higher-than-expected quarterly profit, helped by strong investment banking and retail brokerage revenue. [ID:nN18331623]

And Dow component Johnson & Johnson said first-quarter earnings rose 16 percent, helped by a break-up fee from its failed effort to acquire Guidant Corp. and by higher sales of medical devices. [ID:nN18175281]

The stock market is reacting to the strong earnings reports we've seen earlier today, said Jason Schenker, U.S. economist at Wachovia Corp. in Charlotte, North Carolina. But sooner or later, companies may have to start passing through the increase in energy costs or be hurt by it.

The Dow Jones industrial average <.DJI> was up 55.31 points, or 0.50 percent, at 11,129.09. The Standard & Poor's 500 Index <.SPX> was up 6.71 points, or 0.52 percent, at 1,292.04. The Nasdaq Composite Index <.IXIC> was up 12.80 points, or 0.55 percent, at 2,323.96.

U.S. government figures showed the core Producer Price Index, which excludes volatile food and energy costs, rose less than expected last month.

News of slowing inflation, coupled with data suggesting a further U.S. housing slowdown, supported the view that the Federal Reserve may soon stop raising U.S. interest rates, which pushed Treasury debt prices higher, causing yields to fall.

Yields seem to have found a high. Taking bond yields up every day has been a tough one for the stock market, and the fact it would pause is good news at least in short run for stocks, said Jim Paulsen, the chief investment strategist at Wells Capital Management in Minneapolis.

Benchmark 10-year Treasury notes rose 6/32 in price and their yield fell below the key 5 percent level to 4.99 percent.

Oil prices hit all-time highs as anxiety that Iran's nuclear standoff with the West could cut oil exports from the world's fourth-largest crude exporter.

Crude for May delivery rose 30 cents to $70.70 a barrel after earlier surging to a record of $70.88.

IBM, the world's biggest computer company, Internet media company Yahoo, cell phone maker Motorola and chip manufacturer Texas Instruments are among the companies expected to report quarterly results on Tuesday.

Shares of Merrill rose 0.3 percent to $78.72, while shares of Johnson & Johnson were up 0.2 percent to $57.76, both on the NYSE.

Inflation U.S. Merrill Lynch