Stocks closed higher, pushing the Dow average to a fresh 15-month closing high, as investors bought financial, technology and pharmaceutical shares.
Major indexes rebounded in the afternoon after seesawing earlier, with the Nasdaq up more than one percent and the Dow and S&P 500 also posting gains.
Though there was little in the way of fresh news to move the markets, traders said investors were making index plays that the 2010 rally would continue despite Tuesday's drop.
"It seems like someone was laying some index bets, and the rising tide has lifted everything," said Dave Lutz, managing director of trading at Stifel Nicolaus in Baltimore.
Banking stocks gained more than 1 percent broadly, with Wells Fargo and Bank of America at the front of the pack. BofA earlier was the biggest drag on the Dow.
Pharmaceutical companies also led the charge, with AstraZeneca and Merck both getting a lift from Credit Suisse upgrades. Merck was the Dow's biggest gainer.
BlackBerry maker Research in Motion , perhaps gaining on some bargain hunting after the stock slid, was among the leaders on the Nasdaq.
Airline and hotel stocks also were hot, with Dow indexes covering the two sectors up nearly 3 percent each. The Dow Jones US Tires Index fell about 4 percent.
Stocks had little reaction to another fairly successful Treasury auction. The government auctioned off $21 billion in 10-year notes at a high yield of 3.754 percent, about in line with expectations.
The market also reacted little to the release of the Federal Reserve's Beige Book, which assesses each Fed region's economic conditions. The report showed grudging improvement from the low levels of the recession.
At the same time, the government said it racked up a $91.85 billion budget deficit in December, a record for the month, marking a record 15th straight month of government red ink, the U.S. Treasury Department said on Wednesday.
Energy shares were sharply lower earlier after a report showed an unexpected surge in refined inventories. Oil dropped below $80 a barrel for the first time in 10 days.
Chevron and AT&T were the biggest losers on the Dow 30.
Investors also fended off fears from China, where higher requirements on bank capital levels raised fears that the monetary tightening would slow growth not only there but also in the global economy.
"It's a pretty decent headwind," Lutz said. "It's taking some of the froth off the commodities and the commodity stocks. But I don't think it's a a major headwind as they are tightening very slowly. People knew this was coming, it was well-telegraphed."
The China worries seemed to abate somewhat but remained a lingering concern.
"We don't expect the effects of the current tinkering to be overly disruptive or derail the recovery trend," Ticonderoga Securities analyst John Stoltzfus wrote in a note that acknowledged a "steep selloff" remains possible. "Likely a look in the rearview mirror sometime down the road will tell us that China's actions ... were sensible and ultimately prudent."
Resource companies pared losses, with Southern Copper dropping more than 2.5 percent before clawing back.
Google fell on news that it may pull out of China because of cyber attacks. Chinese search engine Baidu surged.
Sony gained as it postpones the launch of videogame Gran Turismo 5, citing production issues for the latest in that hot-selling videogame line.
—Reuters contributed to this report.