U.S. stocks rose on Tuesday after forecast-topping earnings from Lehman Brothers Holdings Inc calmed investors' fears about the recent credit turmoil as investors anticipated an interest rate cut.

A larger-than-expected drop in the government's Producer Price Index in August also boosted stocks. The dip in the inflation gauge was seen as good news for the Federal Reserve as it weighs lowering the benchmark federal funds rate later on Tuesday.

Lehman Brothers -- the first of four major investment banks to post results this week -- reported a modest drop in quarterly earnings but beat analysts' sharply lowered expectations.

Lehman's chief financial officer said that, barring unforeseen circumstances, the worst of the credit correction was behind them. Lehman's shares rose 2.6 percent at $60.11.

Lehman Brothers was not as bad as some had feared, said Manny Weintraub, managing director at Integre Advisors in New York.

And the PPI number was helpful because you definitely did not want to see signs of the nightmare scenario of a slowing economy and rising inflation.

The Dow Jones industrial average rose 78.44 points, or 0.59 percent, to 13,481.86. The Standard & Poor's 500 Index gained 8.15 points, or 0.55 percent, to 1,484.80. The Nasdaq Composite Index climbed 9.95 points, or 0.39 percent, to 2,591.61.

Stocks also benefited from news the British government was guaranteeing the deposits of large UK mortgage lender Northern Rock. On Monday, U.S. stocks dropped as a rush by savers to withdraw deposits from Northern Rock fueled concerns that turmoil in the credit markets would spread.

The Federal Reserve is widely expected to cut benchmark interest rates by at least 25 basis points from 5.25 percent to cushion the economy from a housing downturn and jittery credit markets.

If delivered, it will be the first cut in the Fed's key federal funds rate in more than four years.

Investors will also comb through the post-meeting statement for clues on the Fed's outlook for the economy and rates. The Fed decision is expected at 2:15 p.m. (1815 GMT).

We're waiting for the Fed, but it's not clear what we do after a cut -- we're sort of still in the same mess, said Weintraub.

In the last major economic release before the Fed's decision, the Labor Department said U.S. producer prices fell last month by the largest percentage since October 2006 as energy prices slumped.

Shares of Best Buy Co Inc rose 3.6 percent to $46.17 after the electronics retailer reported a higher quarterly profit, assuaging concerns about the health of the consumer.

Adobe Systems stock rose 1 percent to $43.48 after the software maker's quarterly results beat Wall Street estimates in an announcement after the closing bell on Monday.