Stocks closed with solid gains, though well off their highs, amid strength in the financial sector and a big decline in oil prices.
In the final hour, profit-takers moved in to benefit from the three-day rally, trimming earlier gains. The markets initially were helped by relative strength in the US economy, while shrugging off a surprising drop in US oil supplies last week.
Shares gained sharply for Visa, Mastercard and American Express on a report that US consumers were using their credit cards more.
Financials were broadly higher, with gains also posted by Morgan Stanley and Lehman Brothers among others. Countrywide Financial led S&P gainers after positive financial news from the troubled mortgage lender gave investors confidence that its acquisition by Bank of America, which was among the Dow leaders, would be completed.
Pharmaceuticals helped boost the tech-heavy Nasdaq, on news that Bristol-Myers Squibb plans to buy Kosan Biosciences, whose shares gained more than 200 percent on the news.
The Dow was led by telecomms, which were up more than 2 percent, led by AT&T.
Shares of major energy producers, particularly Sunoco , were all lower.
Oil briefly surged in the morning after a report showed a sharp drop in crude stocks, but it quickly surrendered gains and fell more than $4 to below $127 a barrel. Dollar-denominated commodities did poorly overall as the US currency staged a rallyfueled largely by talk of an interest rate increase.
The Federal Reserve may need to contemplate rate raises to fight inflation, even as the US economy is still weak, two Fed policy-makers warned, lending weight tomarket suspicions that rate cuts were over.
Several retailers reported as first-quarter earnings season wound down, with Big Lots scoring a Big Gain on a 20 percent increase in sales, while Sears Holdings fell after it reported an unexpected loss caused by slower sales at Kmart and Sears stores.
Also, shares of equipment manufacturer Joy Global gained after its first-quarter earnings were ahead of analyst estimates, even though profit fell 7 percent.
On the downside, Alfacell stock dropped more than 44 percent after the Somerset, NJ-based pharmaceutical said its lead drug candidate failed to improve the survival rate of patients with a special type of cancer. The company said it still plans to seek federal approval for the drug based on positive results for a secondary goal.