By Johann M Cherian and Purvi Agarwal

(Reuters) -The S&P 500 and the Nasdaq edged higher on Wednesday but were near two-week lows as investors watched for an escalation in geopolitical tensions in the Middle East, while a survey soothed concerns about a rapid cooldown in the U.S. labor market.

Markets remained cautious as Israel and the U.S. vowed to strike back after Iran attacked Israel on Tuesday, following which the S&P 500 and the Nasdaq logged their biggest one-day falls in nearly a month.

At 12:10 p.m. the Dow Jones Industrial Average rose 37.78 points, or 0.09%, to 42,194.75, the S&P 500 gained 7.82 points, or 0.14%, to 5,716.57 and the Nasdaq Composite gained 57.33 points, or 0.32%, to 17,967.69.

Seven of the 11 S&P 500 sectors were higher, with Energy stocks touching a more than one-month high. They were last up 0.9%.

Oil prices climbed more than 3% as traders priced in possible supply disruptions from the Middle East. Chevron and Exxon Mobil added 1% and 0.5%, respectively. [O/R]

Defense stocks such as Lockheed Martin and RTX were flat after the broader S&P 500 aerospace and defense index hit a record high on Tuesday.

“Investors are certainly cautious amid the increasing global tensions. There’s limited spillover at this point, but it certainly remains something that investors are closely watching,” said Timothy Chubb, chief investment officer at Girard.

Most semiconductor stocks traded higher, with Nvidia gaining 1.7%, sparking a 2.3% rise in the Philadelphia SE Semiconductor index. The broader infotech sector gained 0.8%.

Fueling optimism, data showed U.S. private payrolls increased more than expected in September, further evidence that labor market conditions were not deteriorating.

“The data coming in a bit above consensus certainly falls into the Goldilocks narrative, but not strong enough to necessarily derail the Fed’s easing cycle,” Chubb said.

Odds of a quarter-percentage-point rate reduction at the Fed’s November meeting are at 65.7%, up from 42.6% a week ago, according to the CME Group’s FedWatch Tool.

Comments from Fed policymakers including Beth Hammack and Alberto Musalem are scheduled through the day, while the focus will stay on Friday’s non-farm payrolls data for September.

Markets ended September higher after the U.S. Federal Reserve kicked off its monetary-policy-easing cycle with an unusual 50-basis-point rate cut to shore up the jobs market.

A dockworkers’ strike on the East and Gulf coasts, costing the economy roughly $5 billion per day according to JPMorgan analyst estimates, entered its second day.

Tesla lost 3.3% after reporting third-quarter vehicle deliveries below estimates.

Nike slid 5.8% after withdrawing its annual revenue forecast just as a new CEO is set to take charge.

Both stocks weighed on the Consumer Discretionary sector, which was at the bottom with a 0.5% loss.

Humana tanked 17.7% after it said it expects the total number of members enrolled in its top-rated Medicare Advantage plans for those aged 65 and above to decrease for 2025.

Declining issues outnumbered advancers by a 1.07-to-1 ratio on the NYSE, while advancing issues outnumbered decliners by a 1.11-to-1 ratio on the Nasdaq.

   The S&P 500 posted 24 new 52-week highs and one new low, while the Nasdaq Composite recorded 67 new highs and 89 new lows.

(Reporting by Johann M Cherian and Purvi Agarwal in Bengaluru; Editing by Pooja Desai)

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