Stocks rose on Wednesday after a major step forward in resolving Europe's debt crisis and before a Federal Reserve decision on Thursday on injecting more stimulus into the flagging U.S. economy.
A top German court ruling earlier cleared the path for a euro zone rescue fund to go ahead with big bond purchases, but investors quickly shifted attention to the Fed, which began a two-day policy meeting on Wednesday.
Stocks rallied after the German Constitutional Court allowed Germany to ratify the new rescue fund, which will allow the European Central Bank to move forward with bond purchases.
The court's decision was expected, so the initial bounce in stocks faded as investors shifted into waiting mode before the Fed's announcement expected on Thursday afternoon.
"The markets are trading higher on the European bailout news," said Anthony Conroy, head trader for BNY ConvergEx, an affiliate of the Bank of New York. "It's been a nice run-up for the past couple of weeks, and some people are going to take some profits off the table."
The Federal Open Market Committee faces a decision whether to launch a third round of bond purchases to lower borrowing costs and breathe more life into an economy that is not growing fast enough to reduce unemployment.
"It's all kind of hinging on the Fed and which way the Fed chooses to go," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC. "If investors' expectations for the Fed are disappointed, you could see a movement out of more cyclical sectors to more stable sectors, perhaps in consumer staples or utilities, areas such as those."
The Dow Jones industrial average <.DJI> was up 12.31 points, or 0.09 percent, at 13,335.67. The Standard & Poor's 500 Index <.SPX> was up 1.46 points, or 0.10 percent, at 1,435.02. The Nasdaq Composite Index <.IXIC> was up 0.78 points, or 0.03 percent, at 3,105.31.
The S&P 500 index has advanced more than 9 percent since the start of June on hopes for global central bank stimulus. But the index has been unable to significantly pierce the 1,438-1,440 level, seen by many analysts as a significant resistance point.
Facebook Inc jumped 5.5 percent to $20.50 after Chief Executive Mark Zuckerberg hinted at new growth areas from mobile to search in his first major public appearance since the No. 1 social network's rocky IPO in May.
Chesapeake Energy slipped 0.2 percent to $20.05 after the company said it is selling $6.9 billion in gas fields and pipelines, with most of its assets in the Permian Basin being sold to Royal Dutch Shell Plc and Chevron Corp , as well as most of its remaining infrastructure network.
Apple Inc slipped 0.1 percent to $660.13 before it was due to unveil its newest iPhone, widely expected to offer 4G wireless technology and a larger display.
Mediware Information Systems Inc shares surged 39 percent to $21.90. The clinical software solutions provider agreed to be acquired by private equity firm Thoma Bravo LLC for $22 per share in cash.
Brent crude prices edged up 0.4 percent to $115.79 a barrel after the German judicial decision, expectations for Fed policy easing, and rising geopolitical risk after militants killed the U.S. ambassador to Libya.
(Reporting By Aleksandra Michalska; Editing by Kenneth Barry)