The Dow Jones industrial average (INDU) rose 30 points, or 0.3%, to close at 11,896. The S&P 500 (SPX) gained 6 points, or 0.5%, to 1,260; and the Nasdaq Composite (COMP) added 24 points, or 0.9%, to 2,693.
It was a big comeback for the market, where the Dow had been down as much as 166 points earlier in the session. Investors found some solace in upbeat comments from Fed governors Donald Kohn, Vincent Reinhart and Brian Madigan, who told the Wall Street Journal that the Fed may consider another round of stimulus.
"It looks like all bets are back on that we will get some form of additional stimulus, possibility a QE3," said Peter Cardillo, chief market economy with Rockwell Global Capital.
"It's been this accumulation of bad economic data -- durable goods, last week's Beige Book commentary, Monday's ISM data -- that continues to force people to sell stocks," James said.
Even with Wednesday's modest gains, investors are still seeking safety in the traditional safe havens of bonds and gold. The yield on the 10-year Treasury note hit 2.6% -- its lowest level since early November.
Gold prices, meanwhile, surged to a fresh intraday record high of $1,675.90 an ounce, before backing off to $1,672.50. Oil dropped $1.86, or nearly 2%, to close at $91.93 a barrel.
"You've seen economic number after number come in weaker than expected -- and that's much more to blame for the recent sell-off than the Washington debt ceiling drama," said Michael James, senior equity trader at Wedbush Morgan Securities.
Investors remain cautious as questions about the economic recovery and the United States' pristine credit rating linger.
Fitch Ratings and Moody's Investors Services confirmed the nation's AAA status Tuesday, following a resolution to raise the debt ceiling and cut fiscal spending. But Standard & Poor's has not yet weighed in on the country's debt rating, after putting it on negative watch last month.
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