U.S. stocks traded in a narrow range for most of the morning, as investors digested the ECB's decision to hold rates steady.
The central bank also extended its quantitative easing program until December 2017, but will reduce purchases to 60 billion euros per month from 80 billion euros. In a news conference, ECB President Mario Draghi said "uncertainty prevails everywhere," but added the risk of deflation has largely disappeared.
"The biggest thing here is he's cutting down the pace of QE," said Peter Cardillo, chief market economist at First Standard Financial. "He's keeping his options open in case something goes wrong, a similar route taken by the United States."
The ECB was widely expected to announce it will continue with its massive trillion-euro bond-buying program at its meeting on Thursday, however some analysts were surprised at the details of the announcement.
"If the Governing Council uses the FOMC's playbook by tapering its activity in consistent increments in the future, then its balance sheet should continue to expand well beyond the end of 2017. The central bank also left the door open to return to an 80B euro target at any time and will buy securities yielding below its current deposit rate of -.40% as needed," said Jeremy Klein, chief market strategist at FBN Securities, in a note.
The euro whipsawed following the ECB's announcement, trading just below $1.09 against the dollar before falling around 1.4 percent to $1.061. The U.S. dollar, meanwhile, rose 0.85 percent against a basket of currencies to trade at 101.1. Equities in Europe, meanwhile, rose sharply, with the pan-European Stoxx 600 index advancing more than 1 percent.
Euro/dollar intraday chartSource: FactSet
European sovereign bond yields spiked, with the 10-year German bund yielding 0.372 percent, while the Italian 10-year yield rose to 1.999 percent. U.S. Treasurys also fell, with the benchmark 10-year yield rising to 2.3944 percent.
In economic news, weekly jobless claims matched expectations at 258,000. "Bottom line, the story remains the same in that the pace of firing's remains modest," said Peter Boockvar, chief market analyst at The Lindsey Group.
Investors have been keeping a close eye on U.S. economic data as they prepare for a Federal Reserve meeting scheduled for next week. According to the CME Group's FedWatch tool, market expectations for a rate hike were above 95 percent.
Meanwhile, in oil markets, U.S. crude futures for January delivery rose 2.15 percent to settle at $50.84 per barrel. First Standard's Cardillo said prices were receiving a boost, in part because of solid economic data from China released overnight.
China's November dollar-denominated imports grew 6.7 percent, the fastest pace of annualized growth since September 2013, while exports were up 0.1 percent in dollar terms. A Reuters poll of analysts had expected November exports to have fallen 5 percent from the previous year, while imports were forecast to drop 6.2 percent.
The Dow Jones industrial average rose 65.19 points, or 0.33 percent, to close at 19,614.81, with Goldman Sachs leading advancers and United Technologies the biggest decliner.
The S&P 500 gained 4.84 points, or 0.22 percent, to end at 2,246.19, with financials leading eight sectors higher and industrials lagging.
The Nasdaq composite advanced 23.59 points, or 0.44 percent, to close at 5,417.36.
About nine stocks advanced for every five decliners at the New York Stock Exchange, with an exchange volume of 975.08 million and a composite volume of 4.131 billion at the close.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded about 2 percent higher, around 12.6.
Gold futures for February delivery fell $5.10 to settle at $1,172.40 per ounce.