Stocks Jump 3% Amid Optimism On Economy

Stocks closed sharply higher as a day-long rally gained steam after the Federal Reserve said the recession would end soon but that unemployment will continue rising.

Technology stocks surged following encouraging earnings, while a slew of economic reports fueled the notion the economy was showing stronger signs of a turnaround. The Fed's forecast bolstered Wall Street's enthusiasm.

Readings on consumer prices, New York manufacturing, industrial production and mortgage applications each provided hope for the economy. While none was particularly buoyant, each beat analyst expectations.

The Fed upped its unemployment forecast for 2009 to as high as 10.1 percent and said inflation would grow as well though it would remain relatively low. But the strong rally only picked up steam after the release of the Fed Open Market Committee minutes.

A week-long rally began Monday thanks to bank stocks, while Wednesday's was driven by technology leaders. Housing and commodities brought a modest gain to the markets on Tuesday and were strong contributors again Wednesday.

The Dow and S&P 500 were on track for their best three-day gains since the beginning of April.

Meanwhile, shares of CIT Group were halted late in the session as financial regulators neared a decision on aiding the troubled lender, CNBC learned. A resolution of the CIT situation is expected within the next 24 hours, sources said.

Intel beat expectations with its after-the-bell earnings report late Tuesday, and issued guidance that was well above consensus as well. Intel's main rival, Advance Micro Devices , also surged.

On the down side of earnings

Yum Brands, the parent of KFC, Taco Bell, and Pizza Hut, also reported better-than-expected quarterly earnings reports but shares fell when the company lowered its outlook.