By Noel Randewich and Sukriti Gupta

(Reuters) -The S&P 500 ended higher on Tuesday, lifted by a rally in Tesla as investors bet on positive results from U.S.-China trade talks aimed at defusing a tariff dispute that has roiled global markets this year.

Wall Street expects improved trade terms after relief from a preliminary deal struck last month was overshadowed by Washington's allegations that Beijing was blocking exports of rare earth minerals critical to the aerospace, semiconductor and defense sectors.

U.S. Commerce Secretary Howard Lutnick said the trade talks were going well and he hoped they would end on Tuesday night, but said they could run into Wednesday.

The U.S. stock market has surged in recent weeks, recovering from an April slump sparked by U.S. President Donald Trump's "Liberation Day" sweeping global tariffs.

With investors betting the United States will reach trade agreements that reduce Trump's steep trade barriers, the S&P 500 is now trading just below its February record highs.

"The expectation is that they'll figure this out, and that the Liberation Day tariff levels are never going to be seen. You can't get to market valuations where we've got them and have those tariff levels get anywhere close to reality," said Scott Ladner, chief investment officer at Horizon Investments.

Shares of Wall Street's most valuable companies were mixed. Tesla rose 5.6%, while Microsoft slipped 0.4%.

Alphabet climbed 1.4% after Reuters reported that OpenAI plans to add Alphabet's Google cloud service to meet its growing needs for computing capacity.

The S&P 500 climbed 0.55% to end the session at 6,038.81 points.

The Nasdaq gained 0.63% to 19,714.99 points, while the Dow Jones Industrial Average rose 0.25% to 42,866.87 points.

Of the 11 S&P 500 sector indexes, 10 rose, led by energy, up 1.77%, followed by a 1.19% gain in consumer discretionary.

Volume on U.S. exchanges was relatively heavy, with 18.5 billion shares traded, compared to an average of 17.9 billion shares over the previous 20 sessions.

Investors are awaiting U.S. consumer prices data on Wednesday for clues to the Federal Reserve's rate trajectory.

The World Bank slashed its global growth forecast for 2025 by 0.4 percentage point to 2.3%, saying higher tariffs and heightened uncertainty posed a "significant headwind" for nearly all economies.

Insmed shares jumped almost 29% after the drugmaker said its experimental drug significantly reduced blood pressure in the lungs and improved exercise capacity in patients in a mid-stage study.