Stocks ended higher after the Fed left interest rates unchanged and kept the "extended period" language in its statement.
Financials were the day's best performers, with JPMorgan and Bank of America leading the Dow.
Earlier, stocks had slipped into negative territory after the S&P downgraded its debt rating on Spain. This follows downgrades on Greece and Portugal, which sparked a selloff in the prior session.
The Dow gained 53.28, or 0.5 percent, to close at 11,045.27, after sliding more than 200 points on Tuesday.
The S&P 500 advanced 0.7 percent higher, while the Nasdaq finished flat.
The CBOE volatility index ended below 22 after surging more than 30 percent on Tuesday in its biggest one-day jump since October 2008.
The Federal Reserve said economic activity continues to strengthen and the labor market is beginning to improve but wasn't willing to remove that "extended period" language, referring to how long it intends to keep rates low.
As with past meetings, Kansas City Fed President Thomas Hoenig was the only dissenter, saying keeping that "extended period" language could create a buildup of future balances and limit the committee's ability to begin raising rates modestly.
"The Fed move was bullish for the market ... low rates are good for stocks," said Dave Rovelli, managing director of equity trading at Canaccord Addams. But, he cautioned, it won't last forever.
"If they [Fed policy makers] don't get their act together soon and start raising rates, it's not going to be too bullish," Rovelli said. "When we have all this debt to refinance the dollar keeps on weakening." he said.
Goldman Sachs shares continued to rise as investors shruggled off Tuesday's marathon Senate hearing grilling executives. While the market was a sea of red yesterday, Goldman was one of the only stocks that rose.
Banks bounced back from Tuesday's selloff, with Morgan Stanley , JPMorgan and Wells Fargo up more than 1 percent.
Republicans are also floating their first financial regulation reform counterproposal, after successfully blocking a bid to start debate on the existing Senate bill for the second straight day.
There will be short-term disruptions, but banks will “find another way to make money,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
Pado added that while the Goldman Sachs hearing and the European debt downgrades may have pushed bank stocks lower yesterday, they were able to rebound because traders anticipate that financials are strong enough to weather such headwinds.
In today's economic news, mortgage applications fell last week as a drop in home refinancing volume outweighed the highest demand for home purchase loans in six months, according to the Mortgage Bankers Association.
Helping to asuage the market's concerns were details of a bailout plan for Greece.
Some market pros say that because Spain is a considerably larger economy than debt-riddled Greece and Portugal, any worsening of its creditworthinesscould create yet bigger headaches for the euro zone as it deals with Athens' crisis.
"Indeed, Spain is the 800-pound gorilla in the room. Greece and Portugal are small countries, but Spain is about five times their size with regards to GDP," said Win Thin, Senior Currency Strategist, at Brown Brothers Harriman.
The dollar climbedto a session high against the euro after Spain’s credit-rating cut and gold prices jumpedto nearly $1,173 an ounce, their highest level in almost five months as investors piled into the commodity in a flight from currency risks. Oil prices steadiedbelow $83 a barrel after the Energy Information Administration said gasoline stock dropped in the last week.
Energy stocks were another strong performer with ExxonMobil , finishing in the Dow's top three ahead of its results, due out Thursday morning.
There was weakness in pharmaceuticals, tech and auto makers with Ford down more than 2 percent.
Apple shares slipped following news that the company has bought two small companies — a chip maker and a personal-assistant software maker.
Apple is expected to unveil the latest version of the iPhone during its annual developers conference in June. Many expect the latest iPhone to have new features such as a front-facing camera and analysts also predict that Apple will bring the device to Verizon in 2011.
Amazon dropped nearly 2 percent and Netflix lost more than 2 percent.
Hewlett-Packard shares ended up less than a tenth of a percent. After the closing bell, the tech giant agreed to acquire Palm in a deal valued at $1.2 billion.
On the earnings front, Dow Chemical rose more than 5 percent after the firm posted better-than-expected earnings as pricing, volume and sales spiked.
And Comcast reported a 12 percent increasein profitas more consumers signed up for digital cable TV and high-speed Internet services. The nation's largest cable TV provider also said advertising on its cable channels rebounded in the quarter, indicating that an economic upturn is taking hold.
But Sprint posted a quarterly loss that was in line with expectations as customer losses slowed from the same period a year ago.
Volume was decent, with 1.44 billion shares changing hands on the New York Stock Exchange. Advancers outpaced decliners, roughly 5 to 2.
Long-dated Treasurys fell further after the 5-year auction, reaching a session low. The $42 billion sale fetched a high yield of 2.540 percent and the bid-to-cover ratio was 2.75, following a weak auction during Tuesday's sale of 2-year notes.
The government will conclude this week's debt sale with a $32 billion offering of 7-year notes tomorrow.
After the closing bell, Visa, Baidu, and Allstate will be among those reporting earnings results. Thursday morning's notable reports include ExxonMobil, ConocoPhillips, Aetna and Motorola.
Still to Come:
WEDNESDAY: Earnings from Visa, Allstate, Baidu after the bell
THURSDAY: Weekly jobless claims; Earnings from ExxonMobil, ConocoPhillips, P&G, Aetna, Bristol-Myers Squibb, Burger King, Kellogg, Motorola, Time Warner Cable, Viacom
FRIDAY: Berkshire Hathaway annual meeting; AT&T shareholder meetings; GDP; consumer sentiment; Earnings from Chevron
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