* U.S. trade deficit smallest in four years
* UnitedHealth shares jump on upgrade
* JPMorgan falls; bank to pay over $2 bln in Madoff case
* Dow up 0.6 pct, S&P 500 up 0.6 pct, Nasdaq up 1 pct
NEW YORK, Jan 7 (Reuters) - U.S. stocks ended higher on Tuesday, snapping the S&P 500's three-day losing streak to give the benchmark index its first positive session of 2014.
A sharp decline in the U.S. trade deficit and upbeat German data helped improve market sentiment as the data pointed to strengthening economic fundamentals in both the United States and Europe.
"One way or the other, (the data) is all pointing to the story about how it might still be tough, but things are starting to point to better days ahead," said Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York.
"Overall, if you look at the broader picture, it does feel like it means it is starting to move ahead."
The S&P healthcare index, up 1 percent, was the best performer among the 10 major S&P sectors, buoyed by a Deutsche Bank upgrade of UnitedHealth Group Inc to a "buy." Shares of UnitedHealth, a Dow component, gained 3.1 percent to close at $76.51. Tenet Healthcare shares climbed 4.9 percent to $46.10.
Community Health Systems Inc shares rose 3.8 percent to $43.49 a day after the company said the new U.S. healthcare law should give a slight boost to its 2014 earnings.
The S&P 500's gains followed a three-day losing streak, which pushed the benchmark index down more than 1 percent as traders took profits in the wake of 2013's rally that drove the benchmark index up nearly 30 percent.
Data showed U.S. exports hit a record high in November, while weak oil prices restrained import growth, resulting in the smallest U.S. trade deficit in four years. German unemployment unexpectedly fell in December on a seasonally-adjusted basis.
The Dow Jones industrial average rose 105.84 points or 0.64 percent, to end at 16,530.94. The S&P 500 gained 11.11 points or 0.61 percent, to finish at 1,837.88. The Nasdaq Composite added 39.501 points or 0.96 percent, to close at 4,153.182.
Shares of Google Inc hit a record intraday high of $1,139.69 before closing up 1.9 percent at $1,138.86. JPMorgan, which has an "overweight" rating on Google, raised its target price on the stock to $1,305 from $1,100.
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 1.2 percent to $58.32 after the largest U.S. bank holding company said it would pay more than $2 billion of penalties to settle charges by U.S. federal authorities that it failed to report suspicious activity involving Bernard Madoff's Ponzi scheme.
GameStop Corp shares plunged 8.4 percent to $44.14, its biggest drop since May 2013, and ranked as the S&P 500's worst performer after Sony Corp said it will begin testing a new PlayStation-based streaming service that could cut into the video game retailer's used game sales. U.S.-listed shares of Sony edged up 0.1 percent to $17.32.
In the pharmaceutical space, Neurocrine Biosciences soared 89.7 percent to $18.51, its highest level since June 2006, a day after it said its movement disorder drug showed a reduction in symptoms compared with a placebo in a mid-stage study.
Stereotaxis shares jumped 12.5 percent to $4.50 following completion of a clinical trial. The Nasdaq biotech index gained 1.4 percent.
Bob Doll, chief equity strategist of Nuveen Asset Management, forecast further upside for equities in 2014, with a year-end target of 1,950 for the S&P 500. But he expects stocks to endure a 10 percent correction during the year.
Volume was modest, with about 6.11 billion shares traded on U.S. exchanges, slightly above the 6.01 billion average so far this month, according to data from BATS Global Markets.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of 2 to 1, while on the Nasdaq, nine stocks rose for every four that fell.