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* Lululemon leaps as poised to join S&P 500

* Charles Schwab jumps on profit beat

* Indexes up: Dow 0.9%, S&P 500 1%, Nasdaq 1.2%

NEW YORK, Oct 16 (Reuters) - U.S. stocks were sharply higher in Monday afternoon trading as investors were optimistic about the start of earnings season, with transportation shares advancing.

Investors were monitoring the Israeli war in Gaza, but appeared to be taking more of a risk-on stance, with safe-haven gold prices down.

The Cboe Volatility index was lower, while the Dow Jones transportation average was up 2.1% and the Russell 2000 small-cap index was up 1.5%.

Consumer discretionary led gains among S&P 500 sectors, although all of the sectors were higher on the day.

Charles Schwab shares jumped as the brokerage posted a smaller-than-expected drop in quarterly profit.

Results from large banks Goldman Sachs, Bank of America, Morgan Stanley, pharmaceutical giant Johnson & Johnson, electric vehicle maker Tesla and video-streaming pioneer Netflix are due this week.

Third-quarter earnings for S&P 500 companies are estimated to have increased 2.2% year-over-year, according to LSEG data Friday.

"At least for today, this is a market that sees a stronger earnings season, a stronger week in terms of earnings and perhaps a turning point in terms of the (Middle East) conflict," said Quincy Krosby, chief global strategist, LPL Financial in Charlotte, North Carolina.

The Dow Jones Industrial Average rose 301.32 points, or 0.89%, to 33,971.61, the S&P 500 gained 44.44 points, or 1.03%, to 4,372.22 and the Nasdaq Composite added 160.90 points, or 1.2%, to 13,568.13.

Earlier, data showed the NY Fed's "Empire State" index, a gauge of manufacturing activity in New York State, fell to -4.60 in October, against expectations of a drop to -7.

Philadelphia Fed President Patrick Harker reiterated his view from Friday that the U.S. central bank was likely done with its rate-hike cycle.

Lululemon Athletica rose to an almost two-year high and was last up more than 10% as the Canadian sportswear apparel maker was set to join the S&P 500 index this week, replacing Activision Blizzard.

Advancing issues outnumbered declining ones on the NYSE by a 2.70-to-1 ratio; on Nasdaq, a 2.20-to-1 ratio favored advancers.

The S&P 500 posted 11 new 52-week highs and 6 new lows; the Nasdaq Composite recorded 32 new highs and 178 new lows. (Additional reporting by Ankika Biswas and Shashwat Chauhan in Bengaluru; Editing by Arun Koyyur, Vinay Dwivedi and Aurora Ellis)