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Stocks Eke Out Gains Ahead of Fed; FB Up 7%

Stocks ended a touch higher Wednesday ahead of the Federal Reserve's policy announcement and after the Dow and S&P 500 touched fresh multi-year intraday highs earlier in the session.

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The Dow Jones Industrial Average squeezed out a gain of 9.99 points, or 0.07 percent, to close at 13,333.35, led by Verizon . The blue-chip index hit an all-time high of 14,164.53 in October 2007. At current levels, the index is about 6 percent shy of that mark.

The S&P 500 rose 3.00 points, or 0.21 percent, to end at 1,436.56. The Nasdaq gained 9.78 points, or 0.32 percent, to finish at 3,114.31.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, slipped below 16. (Read More: Why the S&P Could Go Even Higher)

“The market’s at a multi-year high but everyone’s walking on eggshells,” said Alan Valdes, VP of trading at DME Securities. “People aren’t believing in the rally.”

Among key S&P sectors, telecoms rose, while materials dragged.

Apple announced its widely-anticipated iPhone 5, a thinner model and 20 percent lighter than its predecessor, with a four-inch display and improved color resolution. In addition, the company introduced some new iPods. Shares were volatile following the announcement, but shot up nearly 2 percent in the final hour of trading to close higher.

"Overall, the iPhone 5 announcement was in line with previews, though we think the phone is launching at more carriers and sooner than many investors expected," according to a note from Jefferies. "We believe the launch schedule implies that supply constraints are not as bad as some feared. We see numerous catalysts for the shares to perform well over the next couple months and the next year."

Investors will be looking ahead to the Fed's two-day meetingon interest rate policy with the central bank's latest statement announced Thursday. The Dow rallied to its best level since December 2007 in the previous session amid growing expectations that the Bernanke will launch another round of quantitative easing on the heels of some recent weak economic data.

“We’re in a holding pattern—all eyes are on the Fed and investors are cautious over the geopolitical events in the Middle East,” said Todd Schoenberger, managing principal at The BlackBay Group. “This rally’s been based on a ‘Bernanke bubble’ … if he doesn’t come through with another round of QE, it’s going to be a big disappointment.”

Earlier, markets popped after the German Constitutional Court approved the proposed permanent euro zone bailout fund, the European Stability Mechanism (ESM), but gave parliament veto powers over any future increases in the size of the fund. European shares rallied to multi-month highsfollowing the decision, while yields on Spanish and Italian debt fell. (Read More: How Debt Crisis Could Rip Spain Apart)

In addition, European Commission President Jose Manuel Barroso called for a full fiscal unionand criticized EU nations that don't fully support measures taken to combat the debt crisis.

"Looking ahead, the uncertainty over the upcoming U.S. election, the fiscal cliff and the Middle East still overhang the markets," wrote Gary Thayer, chief macro strategist at Wells Fargo Advisors. "However, the stock market has advanced to new multi-year highs because the U.S. economy is growing slowly, and policymakers are taking action to reduce the economic and financial turmoil in Europe."

Facebook jumped near $21 a share, posting its biggest one-day gain since its IPO, after CEO Mark Zuckerberg said the stock’s drop has been disappointing but he remains optimistic about the company’s future. Still, Needham cut its price target on the social-networking giant to $25 from $40.

Abercrombie & Fitch spiked higher after the company said it has retained Goldman Sachs as an advisor in response to pressure from activist shareholders.

Texas Instruments was flat after the chipmaker narrowed its third-quarter revenue outlook and lifted the lower end of its earnings guidance.

On the economic front, import prices climbed in Augustfor the first time in five months as the cost of imported oil jumped, according to the Labor Department. Export prices also gained. Wholesale inventories rose in July, posting its biggest increase since February, according to the Commerce Department.

Weekly mortgage applications gained last weekas refinancing and new loan demand climbed, according to the Mortgage Bankers Association.

The government auctioned $21 billion in 10-year notes at high yield of 1.764 percent and bid-to-cover of 2.85.

By CNBC’s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Coming Up This Week:

THURSDAY: Jobless claims, PPI, 30-yr bond auction, FOMC mtg announcement, FOMC forecasts, Bernanke press conference; Earnings from Pier 1 Imports
FRIDAY: CPI, retail sales, industrial production, consumer sentiment, business inventories, FDA decision on Truvia

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