A more upbeat Federal Reserve is reassuring investors that they've been making the right bets.
Stocks surged early Wednesday, then held on to most of their gains after the Fed's midday statement on the economy, which cited a "leveling out" of activity.
That marked an improved assessment from the central bank's post-meeting statement in June, which said the economy was contracting, albeit more slowly.
Wednesday's advance re-energized the market's summer rally after it had stalled Monday and Tuesday. Major market indexes jumped more than 1%, with the Dow Jones industrial average rising 120.16 points, or 1.3%, to 9,361.61 -- just below the nine-month closing high of 9,370.07 reached Friday.
In the bond market, Treasury yields ended just slightly higher despite a somewhat disappointing auction of new 10-year T-notes, and as the Fed signaled that it wouldn't expand its program of buying government securities for its own account.
On Wall Street, investors found encouragement Wednesday from a range of industries.
Shares of home builder Toll Bros. surged $2.94 to $23.42 after the firm said the number of buyers signing purchase contracts in its fiscal third quarter rose from the year-earlier period for the first time in four years.
Retail giant Macy's gained 93 cents to $16.40 after reporting a better-than-expected second-quarter profit thanks to cost-cutting.
The tech sector got a lift after Applied Materials reported fiscal third-quarter results that topped analysts' expectations. The maker of equipment for manufacturing semiconductors rose 44 cents to $13.66.
Insurers led financial stocks higher after Standard & Poor's said it may raise its credit rating on Travelers Cos. The commercial and personal property insurer added $1.50 to $46.43.
The broad S&P; 500 index rallied 11.46 points, or 1.2%, to 1,005.81. The Nasdaq composite index added 28.99 points, or 1.5%, to 1,998.72.
Rising stocks outnumbered losers by more than 2 to 1 on the New York Stock Exchange.
Stocks saw a fresh burst of buying after the Fed's statement at midday, but profit-takers then moved in. Key indexes closed at about the same levels they had held just before the Fed's announcement.
The Fed "did really endorse the fact that we're moving into recovery, not searching for the bottom" in the economy, said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
As expected, the central bank also indicated that it would complete its program of buying $300 billion of Treasury securities, but would cap the purchases at that level.
The Fed has been buying Treasuries this year in an effort to hold down yields on the bonds, but they have risen anyway, amid signs of an economic turnaround.
"The fact that they are going to wind down the Treasury purchases I think leaves the clear impression that they are quite satisfied with the progress we are making in the recovery," McCain said.
Bond yields were higher Wednesday after the Treasury sold a record $23 billion of new 10-year notes at a yield of 3.73%, slightly above expectations. The Treasury market showed little reaction to the Fed's announcement on its purchase plan, which is expected to terminate by the end of October.
The yield on the existing 10-year T-note inched up to 3.70% from 3.69% on Tuesday.
The Treasury will sell $15 billion of 30-year bonds today.
In other market activity, near-term crude oil futures rose 71 cents to $70.16 a barrel.
Overseas, the Shanghai market index tumbled 4.7% on fresh worries that the government wants to restrict the recent boom in bank lending. The index now has fallen 10.3% from its recent peak reached Aug. 4, its biggest setback since late February.