* U.S. trade deficit smallest in four years
* UnitedHealth gains on upgrade, Netflix slips on downgrade
* Indexes up: Dow 0.7 pct, S&P 0.6 pct, Nasdaq 0.9 pct
NEW YORK, Jan 7 (Reuters) - U.S. stocks rose Tuesday, putting the S&P 500 on track for its first positive session of 2014 as equities rebounded following a three-day decline.
A declining U.S. trade deficit and upbeat German data added to the market optimism as they pointed to strengthening economic fundamentals in both the United States and Europe.
All 10 S&P sectors rose on the day, led by healthcare , which advanced after Deutsche Bank upgraded UnitedHealth Group Inc to "buy."
Shares of UnitedHealth, a Dow component, jumped 3.5 percent to $76.85 while Tenet Healthcare climbed 4.1 percent to $45.73 as the S&P's biggest percentage gainer.
The S&P's gains follow a three-day losing streak, which came as traders took profits following 2013's massive rally which saw the benchmark index surge nearly 30 percent.
"We're getting a nice little snapback following a pretty soggy first couple of days, which created some anxiety because some people think that sets the tone for the year," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York.
"Volume and news remain light, but people expect this year to be positive so the negative start probably got a bit overdone."
Data showed U.S. exports hit a record high in November, while weak oil prices restrained import growth, resulting in the smallest trade deficit in four years. German unemployment unexpectedly fell in December on a seasonally-adjusted basis.
The Dow Jones industrial average was up 118.91 points, or 0.72 percent, at 16,544.01. The Standard & Poor's 500 Index was up 11.56 points, or 0.63 percent, at 1,838.33. The Nasdaq Composite Index was up 37.53 points, or 0.91 percent, at 4,151.21.
Economic activity may be hurt by a polar vortex - strong upper-level winds in the Northern hemisphere that normally hover over the polar region - that has been pushed south to envelop a large part of the United States.
JPMorgan Chase & Co shares fell 1 percent to $58.43 after the company said it would pay a $1.7 billion penalty to settle charges by U.S. federal authorities that the bank failed to report suspicious activity relating to Bernard Madoff's Ponzi scheme.
Netflix Inc was one of the day's biggest decliners, dropping 4.3 percent to $344.18 after Morgan Stanley downgraded the stock to "underweight."
On the upside, Micron Tech rose 3.7 percent to $21.43 after Roth Capital raised its price target on the stock by $4 to $25. The company is scheduled to release its quarterly results after the market closes on Tuesday.
Intel Corp rose 1 percent to $25.71 a day after the company showed off wearable computing devices on Monday, including a smart headset and ear buds that monitor the wearer's heart rate, as the world's largest chipmaker tries to get back on track after missing out on smartphones.
In the pharma space, Neurocrine Biosciences soared 78 percent to $17.32 a day after it said its movement disorder drug showed a reduction in symptoms compared with a placebo in a mid-stage study; Stereotaxis jumped 21.8 percent to $4.87 following completion of a clinical trial.
Janet Yellen made history on Monday as the U.S. Senate confirmed her as the first woman to lead the U.S. Federal Reserve in the central bank's 100-year history.
Eric Rosengren, president of the Federal Reserve Bank of Boston, said he expects gross domestic product growth of about 3 percent this year and added that low inflation is a concern.