GM, P&G Lead Rally Ahead of Fed

Blue chips General Motors and Procter & Gamble led the Dow industrials higher Wednesday after both firms surpassed expectations and P&G raised its outlook.

"I’m starting to get a little more bullish on the market as earnings are unfolding," Steve Massocca, co-CEO of Pacific Growth Equities, told CNBC. "One of the reasons for my caution was that earnings season wasn't going to go well, the economy was going to slow and companies were going to have a difficult time finding profitability -- that's just not happening," Massocca said.

Crude oil dropped below $114 a barrel after the EIA reported a larger-than-expected build in crude inventories.

Once again, crude's decline gave a boost to airline stocks. Also in the sector, British Airways confirmed a rumor circulated in the market on Monday that it is exploring an alliance with airlines including AMR's American and Continental .

Also giving a boost to the market were economic reports that showed the economy grew faster in the first quarter than previously expected and private-sector payrolls grew in April.

U.S. gross domestic product grew at a 0.6 percent annual pace, beating expectations, the Commerce Department reported in the first of three readings on first-quarter GDP. That was the same pace as in the fourth quarter of 2007.

A closely-watched inflation gauge in the GDP report, core prices excluding food and energy, rose at a 2.2 percent rate, down from a 2.5-percent pace in the fourth quarter but still above the Federal Reserve's comfort zone, which tops out at 2 percent.

Offering insight into the employment situation ahead of Friday's jobs report, ADP said private-sector employers added 10,000 jobs to payrollsin April. Economists polled by Reuters had expected payrolls to shrink by 60,000 jobs.

All eyes will shift toward the Fed ahead of the central bank's rate decision, due out at 2:15 p.m. ET. There is an 80 percent chance that the Fed will cut short-term ratesby a quarter point to 2 percent, according to fed-funds futures contracts.

And while many expect the central bank to pause in its loosening cycle, investors will be poring over the Fed statement for indications about future moves.

"Well, the general consensus, and I'm expecting it, as well, is to hear that basically the cuts are over, at least for now with the concerns of inflation out there and that we are really seeing improvements in the economy," Donna Heidkamp, senior trading advisor at RJO Futures, told CNBC.

Citigroup was the biggest drag on the Dow after the bankearly Wednesdayboosted its stock offering to $4.5 billionfrom the $3 billion announced late Tuesday, citing increased demand.

General Motors , the top gainer on the Dow, posted a smaller-than-expected loss for the first quarter. Still, the auto maker posted a hefty net loss of $3.3 billion due to a costly supplier strike and waning demand for some of its most profitable vehicles.GM also took a $1.45-billion charge for its remaining investment in finance company GMAC and a $731-million charge for its exposure to the bankruptcy of auto-parts supplier and former subsidiary Delphi.

Lots of snacks and other household items in the earnings hopper this morning.

Procter & Gamble , the No. 2 gainer on the Dow,reported itsnet income rose 8 percent, as cost-cutting measures helped offset high oil and commodity prices. The company, whose products include Pringles, Pampers and Iams pet food, posted higher quarterly profit as cost controls helped offset soaring prices for oil and other commodities, and raised its forecast for its fiscal year.

Colgate-Palmolive surpassed expectations, helped by strong overseas sales, but the company, whose products include Irish Spring and Softsoap, projected flat to slightly higher margins going forward, which dented the stock.

Both P&G and Colgate "are pushing very aggressively in China," JPMorgan's John Faucher told CNBC Wednesday. "We're seeing much more market share going to the multinationals, leaving local companies ... they're providing a much higher quality product at really a not much higher price point."

Kraft alsobeat profit forecasts, helped by price increases and new products. Excluding one-time items, earnings were flat. The largest North American food maker, whose brands include Oreo, Oscar Meyer, Triscuits and Tang, said sales rose 21 percent.

Time Warner reported a first-quarter profit that fell shy of market expectations, but issued full year earnings guidance that was still in line with analysts' consensus estimates. The company also announced plans to spin off its cable services operations.

This Week:

WEDNESDAY: Fed rate decision (2:15 p.m. ET); earnings after the bell from Prudential and Starbucks
THURSDAY: Monthly auto sales; jobless claims; personal income and spending; ISM manufacturing index; construction spending; earnings from Kodak, ExxonMobil
FRIDAY: April jobs report; factory orders; earnings from Chevron, Viacom

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