* Indexes up: Dow 1.21%, S&P 500 0.93%, Nasdaq 1.35%

* Target ( TGT ) slides after warning of tough macro environment

* Chip sector rallies; Nvidia ( NVDA ) rises ahead of earnings

after close

(Updates prices to late afternoon)

By Sinéad Carew and Utkarsh Hathi

May 20 (Reuters) - Wall Street's main indexes rallied on

Wednesday, rebounding from a three-day selloff with a boost from

chip stocks, which rose ahead of Nvidia's ( NVDA ) quarterly results.

Shares in leading artificial intelligence chipmaker Nvidia ( NVDA )

, the world's most valuable company, rose 1.8% ahead of

its quarterly results, due after the closing bell. Investors

will crunch the numbers for signs that appetite for AI

infrastructure remains strong enough to support lofty valuations

across the technology and AI space.

The Philadelphia SE Semiconductor index advanced 3.9%

and some of its biggest gainers included Astera Labs ( ALAB ),

up more than 16%, and ARM Holdings U.S. shares, which

rose more than 13%.

"Technology is driving the bus again today, and the AI

theme. We've swapped back from yesterday's concerns about rising

rates and potential inflation and are leaning more into the

all-things-AI story," said Carol Schleif, chief market

strategist at BMO Private Wealth in Minneapolis. "It's actually

a little bit unusual because you would expect the market to sit

pretty quiet waiting for Nvidia's ( NVDA ) results later today. But

there's clearly a lot of optimism."

The lack of a resolution to the Iran war sent U.S. indexes

lower in the last three days as investors worried that elevated

oil prices will boost inflation.

On Wednesday, Iran's foreign ministry spokesperson said the

exchange of messages between Iran and the U.S. has continued.

President Donald Trump said negotiations with Iran were in the

final stages and that the U.S. may have to attack Iran even

harder but would wait and see if they can reach a deal.

While investors are still monitoring fluctuating energy

prices and inflation, Schleif said "they really want to look

beyond what's going on in the Middle East" and focus on the

potential of AI.

Also supporting stocks, the benchmark 10-year Treasury yield

eased to about 4.58% on Wednesday after rising for three

straight days and touching a 16-month high.

At 2:31 p.m. the Dow Jones Industrial Average

rose 596.66 points, or 1.21%, to 49,960.54, the S&P 500

gained 68.57 points, or 0.93%, to 7,422.18 and the Nasdaq

Composite gained 348.38 points, or 1.35%, to 26,219.09.

Stocks held steady after the release of minutes from the

Federal Reserve's last meeting showed a growing number of

officials saying the central bank should lay the groundwork for

a possible rate hike. Bets for a Federal Reserve rate hike in

December dipped slightly to a 38.5% probability from 42% on

Tuesday, according to the latest data from CME Group's FedWatch

tool.

But citing uncertainty around issues such as oil prices,

tariffs and AI, Brian Jacobsen, chief economic strategist at

Annex Wealth Management, said after the minutes that "it's hard

to take any of their forward guidance as more than just mere

guesswork."

Seven of the 11 major S&P 500 sectors traded higher, led by

consumer discretionary, up 2.2%, and technology

, which added 1.6%.

On the flip side, energy dropped 2.3% as oil prices

fell, while consumer staples slipped 0.9%.

Target ( TGT ) shares fell 5.7%, weighing on staples, after

the big-box retailer warned of a challenging macroeconomic

backdrop even as it doubled its annual sales-growth forecast.

Shares in retail bellwether Walmart ( WMT ), expected to report

quarterly results on Thursday, were down 2.2%.

Among other movers, airline stocks were broadly higher amid

falling oil prices, with Delta Air Lines ( DAL ), United

Airlines, Southwest Airlines ( LUV ) and Alaska Air ( ALK )

up between around 7% and 11%.

Intuit shares declined 3.9%. Reuters, citing an

internal memo, reported that the company is laying off about

3,000 employees.

Advancing issues outnumbered decliners by a 3.13-to-1 ratio

on the NYSE where there were 159 new highs and 108 new lows. On

the Nasdaq, 3,545 stocks rose and 1,178 fell as advancing issues

outnumbered decliners by a 3.01-to-1 ratio. The S&P 500

posted 19 new 52-week highs and 15 new lows.