The policy-setting Federal Open Market Committee began meeting on Tuesday to discuss whether to trim its bond purchases, or quantitative easing. Many investors expect Fed chairman Ben Bernanke will announce a scale-back of purchases by $10 billion a month to $75 billion, while keeping rates close to zero.
"The ($10 billion) appears to be what investors are looking for, as long as the taper is not bigger than people were expecting the market will react positively," said Paul Mangus, head of equity research and strategy at Wells Fargo Private Bank in Charlotte, North Carolina.
"The Fed is very aware of how they believe investors will react. They've been very skillful about trying to manage expectations."
A statement with the FOMC's decision will be released on Wednesday afternoon, followed by a Bernanke news conference.
The Dow Jones industrial average (^DJI) rose 34.95 points or 0.23 percent, to 15,529.73, the S&P 500 (^GSPC) gained 7.16 points or 0.42 percent, to 1,704.76 and the Nasdaq Composite (^IXIC) added 27.853 points or 0.75 percent, to 3,745.699.
The S&P 500 closed above the key resistance level of 1,700 for the first to since August 5 and is 0.3 percent below its record high of 1,709.67.
U.S. consumer prices barely rose in August, but gains in rents and medical costs pointed to a stabilization in underlying inflation that could allow the Fed to scale back stimulus.
Adding to investor confidence, crude prices continued to fall as a deal averting a U.S.-led attack on Syria calmed fears of a Middle East oil supply disruption. (O/R)
Brent settled down 1.7 percent to $108.19 and is down 2.5 percent in the past two days. U.S. crude settled down 1.1 percent on the day at $105.42 a barrel.