U.S. stocks gained Tuesday amid another cooler-than-expected inflation report, even as fresh geopolitical tension threw a wrench into the rally midday.

The S&P 500 (^GSPC) closed higher by 0.8%, while the Dow Jones Industrial Average (^DJI) inched higher by 0.1%. The technology-heavy Nasdaq Composite (^IXIC) jumped 1.5% higher, for its best close since September.

Wall Street rallied on new signs of optimism that inflation may be cooling. October’s producer price index (PPI) declined to 8% annually, down from 8.5% in September, after economists surveyed by Bloomberg forecasted 8.3%.

Annual core PPI also surprised at 6.7% year over year, compared to a consensus estimate of 7.2%. The PPI report comes after other key inflation data came in lower than expected last Thursday, with consumer prices rising 0.4% in October and core prices adding 0.3%.

"Core PPI and the core PCE deflator follow very similar tracks, though the surge in rents this year has driven an unusually large wedge between them," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note following the PPI release. "But the pace of rent increases has peaked, and our chart suggests that the steep drop we expect to see in core PPI inflation will drag down the core PCE measure faster than markets and the Fed expect."

Stocks pared early gains in the afternoon after Polish Prime Minister Mateusz Morawiecki convened a security meeting. According to the Associated Press, a senior U.S. intelligence said Russian missiles crossed into Poland, killing two people.

Investors also watched more geopolitical moves, as U.S. President Joe Biden’s met with China President Xi Jinping, the first between the leaders of the world's two largest economies since Biden took office.

Yields on the benchmark 10-year Treasury note moved higher Tuesday to around 3.7%, while the dollar index, which measures the currency against six counterparts including the yen and euro, slipped 0.25% to $106.39 Wednesday afternoon.