Stocks snapped a three-day losing streak, but came off the day's highs Wednesday after a top Fed official said he is against providing stimulus even if the economy worsens, opposing previous comments from chairman Ben Bernanke that fueled a strong rally for most of the session.
The Dow Jones Industrial Average closed higher, led by Caterpillar.
The S&P 500 and the tech-heavy Nasdaq also finished higher. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell near 19.
Most S&P sectors were higher, led by consumer discretionary, materials and energy.
Dallas Fed President Richard Fisher said he "will not support further monetary accomodation," even if the economy worsens.
"I do not personally see the benefit of more monetary accommodation even if the economy weakens further," Fisher told reporters after a speech at the Rotary Club of Dallas. Because again, there's so much liquidity out there, what's the trigger to put it to work?"
Fisher is a voter this year on the Fed's policy-setting panel.
Stocks soared earlier after Bernanke said the Fed is preparing for another round of Treasury bond buying in a speech to Congress, also known as quantitative easing. He also said it could also cut the interest paid to banks on the reserves they hold as a way to encourage them to lend more.
“The only thing the Federal Reserve can control is the equity market,” said to Alan Valdes, director of floor operations at DME Securities. “It’s going to help the equity markets short-term because people are keeping this market from double-dipping…but it doesn’t help the economy at all.”
In addition, Bernanke said the Fed could also be more explicit in spelling out how long it planned to keep rates at record-low levels. That would give investors confidence about the Fed's efforts to continue supporting the economy.
Traders also monitored actions from Washington as they became more sensitive to comments regarding the debt ceiling and deficit discussions. The nation could go into default if the debt ceiling isn't raised by Aug. 2.
House Speaker John Boehner said he hasn't been able to get commitments from Obama and his team about cutting big entitlement programs, adding that "dealing with them the last couple months has been like dealing with Jell-O."