McDonald’s led gains for US equities as the wider markets edged up on news that small business confidence had risen to its highest level in three years.

But disappointing earnings reports from smaller companies and a fall in energy stocks due to an interest rate rise in China pared gains for the session.

McDonald’s, the world’s largest burger chain by sales, saw strong gains after reporting same-store sales had unexpectedly risen by 5.3 per cent in January compared with the same period a year earlier. The stock climbed 2.6 per cent to $75.36.

The news lifted the restaurant sector. Starbucks was up 2.4 per cent to $33.12 while the S&P consumer services index was up 1.8 per cent to 306.96. This helped Wall Street add to the 2½-year highs reached on Monday.

The S&P 500 index closed 0.4 per cent higher to 1,324.57. The Dow Jones Industrial Average gained 0.6 per cent to 12,233.15 while the Nasdaq Composite was up 0.5 per cent at 2,797.05.

Also helping to lift markets was data from the National Federation of Independent Business showing that US small business confidence was at its highest level since December 2007.

But the survey also showed that small businesses remained cautious about hiring and the group was far from jubilant about the future prospect for small business.

“While recent political rhetoric favours small business, it is belied by the actions of policymakers whose new policies and activities almost exclusively support big businesses,” said Bill Dunkelberg, chief economist at the National Federation of Small Business. “While the economy is moving forward, albeit at a snail’s pace, it is not nearly fast enough to dramatically improve the unemployment situation, which continues to languish.”

Also tempering sentiment on Wall Street was some lacklustre earnings news.

Principal Financial, the life assurer, released disappointing fourth-quarter results, sending shares down 4.3 per cent to $32.24. The group reported a profit of $199.3m, or 62 cents a share, up 40 per cent from the previous year but short of the 68 cents predicted by analysts.

Elsewhere, NYSE Euro-next, the world’s largest stock exchange by revenue, said fourth-quarter net profit had fallen 20 per cent as trading volumes in the US and Europe slowed. This sent shares in the group down 1 per cent to $33.41.

The energy sector saw the greatest losses in the session on news that China had raised interest rates in an effort to combat domestic inflation.

Schlumberger, the largest oil services group in the world, was down 0.9 per cent to $88.04 while Halliburton lost 2.6 per cent to $44.97.

This was the third time that China had raised its benchmark interest rate since October and it sent the S&P energy index down 0.5 per cent to 552.71.

The wider markets were not dragged down by the rate rise, however, as many investors saw the move as both expected and even necessary.

“The Chinese keeping inflation under control is positive for US equities,” said Randy Warren, chief investment officer at Warren Financial. “It is only if investors think they are pulling back too hard that equities will really start to react badly.”

In deal news, Kindred Healthcare agreed to acquire RehabCare Group in a move the companies said would create the largest US post-acute healthcare services group. The $900m deal sent shares in Kindred Healthcare up 28.3 per cent to $25; RehabCare Group shares climbed 45.5 per cent to $37.05.

Herley Industries, a defence contractor, agreed to be acquired by Kratos Defense & Security Solutions for about $270m. This sent shares in Herley up 16.3 per cent to $18.89 while Kratos shares were flat at $14.01.

Conexant Systems, the semiconductor maker, jumped 17.9 per cent to $2.47 after saying Golden Gate Private Equity had offered to buy it for $2.35 to $2.45 a share.

These deals follow on from a series of bigger deals in the previous session. On Monday, Ensco, the UK oil services provider, said it would buy Pride International for $7.1bn in a move that would create the world’s second-largest offshore driller by number of rigs. Danaher, an acquisitive US conglomerate, also agreed to buy Beckman Coulter, a maker of diagnostic equipment, for $6.8bn.

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