(Corrects paragraph 11 to show UPS is on Dow transportation index, not Dow industrials)
* Windstream rallies; set to spin off assets into REIT
* Pfizer, Merck rise as results beat expectations
* Herbalife shares tumble after it cuts sales outlook
* Indexes up: Dow 0.34 pct, S&P 0.24 pct, Nasdaq 0.55 pct
By Rodrigo Campos
NEW YORK, July 29 (Reuters) - U.S. stocks rose Tuesday on news about a spinoff in the telecommunications sphere that sent most stocks in the sector soaring and on better-than-expected results from Pfizer and Merck.
Windstream Holdings jumped 18.2 percent to $12.45 in its most brisk trading on record after the company filed to spin off assets into a tax-efficient publicly-traded real estate investment trust.
The strategy triggered bets on long-term advantages for peers and the S&P telecoms sector index rose 3.9 percent with AT&T up 4 percent to $37.09, Verizon up 2.4 percent at $52.82, CenturyLink up 9.2 percent to $41.18 and Frontier Communications up 18.2 percent to $7.02.
The Windstream spinoff's long reach boosted shares in other network owners and operators, with Comcast and Time Warner Cable up more than 2 percent each, lifting the S&P consumer discretionary sector 0.6 percent.
"The market to some degree has been locked into a range and struggling to find leadership of late, so the movement in telecoms is important in that regard," said Gordon Charlop, a managing director at Rosenblatt Securities in New York.
Dow components Merck and Pfizer reported better-than-expected quarterly results. Merck's new drugs offset declining sales of ones facing generic competition and Pfizer was helped by growing sales of its cancer medicines. Merck shares were up 1.5 percent at $58.85 and Pfizer added 0.4 percent to $30.22.
The Dow Jones industrial average rose 58.51 points or 0.34 percent, to 17,041.1, the S&P 500 gained 4.66 points or 0.24 percent, to 1,983.57 and the Nasdaq Composite added 24.35 points or 0.55 percent, to 4,469.26.
U.S. consumer confidence jumped in July to a high not seen since October 2007 but single-family home prices fell 0.3 percent in May on a seasonally adjusted basis, falling short of expectations.
"The data has been unremarkable, there's nothing in there to cause the market to deviate from its current trajectory," said Charlop. "Unless we have earnings surprises I don't see anything that will derail the move to the upside."
The Federal Reserve began a two-day meeting on monetary policy. The Fed could make subtle yet telling changes to its policy statement due Wednesday, as it plans how and when to eventually raise interest rates.
Weighing on the Dow Jones Transportation Average, shares of UPS fell 3.3 percent to $99.32 after the world's biggest courier company slashed its earnings forecast for the year due to spending to boost capacity. The index was down 0.8 percent.
Shares of health insurer Aetna fell 2.7 percent to $82.54, even as it reported a higher second-quarter profit helped by last year's acquisition of Medicare and Medicaid provider Coventry Health Care.
Herbalife cut its sales outlook for the year after raising it three months earlier, following billionaire investor Bill Ackman's latest round of accusations against the company last week. Shares of the weight-loss and nutrition products company slid 11.9 percent to $59.44. (Editing by Bernadette Baum)