The afternoon release of the Federal Reserve's "beige book' survey of economic conditions also comforted investors about the economy.

A sharp rise in crude oil prices to back above $62 a barrel failed to dent the rally. Energy shares rose with higher oil prices.

The Dow Jones Industrial Average closed up 90 points at 12,227, a bit below an intraday high of 12,234.

Dow component Intel Corp. rose 1.4% after UBS reiterated a buy on the stock, citing a "positive" meeting with Intel chief executive Paul Otellini.

The S&P 500 gained 12 points to 1,398, while the Nasdaq Composite rose 19 points to 2,432.

The U.S. economy grew at a 2.2% annual pace in the third quarter, faster than the initial estimate of 1.6%, the Commerce Department reported Wednesday in its first revision to the gross domestic product report. Economists expected growth to be revised to 1.8%. See full story.

The report helped support the dollar, which has been a focus of concern for the market recently, amid concerns that a fast-falling housing market may lead to a hard landing for the economy.

Another report showing new home sales fell 3.2% in October was still positive for the market as it helped support the case that the Federal Reserve will cut interest rates to stave off slowing growth next year, according to Robert Pavlik, chief investment officer at Oaktree Asset Management. See full story.

Finally, the Fed's beige book said economic conditions have improved slightly over the past month, with most districts reporting moderate growth. See full story.

According to Stephen Sachs, head of trading at Rydex investments, the market is still rebounding from its big drop on Monday, when investors used "dollar weakness as an excuse" to sell.

"It had been a while since we'd had a day like [Monday], so today it's still a rebound," Sachs said.

"I still believe it's a coin toss whether or not we go into recession next year, but trading institutions are still plowing money into U.S. equities, so we should continue [seeing gains] until at least year end."

Investor sentiment had already returned to positive on Tuesday, as the market didn't succumb to the heavy selling pressure seen on Monday, said Oaktree's Pavlik.

"The smart money knows that's there are a lot of under-invested portfolio managers who need to get their positions up, and this smart money still sees more upside potential," Pavlik said.

"The lack of continuation of a slide made people come back with even more interest," he said. "While we're still trying to gauge at which stage of the economic cycle we're in, [investors] will focus on asset allocation."

Trading volume was 1.6 billion shares on the New York Stock Exchange and 1.91 billion on the Nasdaq.

Gaining issues outpaced decliners 13 to 3 on the Big Board and 20 to 9 on the Nasdaq.

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New-home sales are now down 25.4% in the past year. Measured out over the first 10 months of 2006 compared with the same period in 2005, sales are down 17.9%.

Economists had been expecting a decline to an annualized rate of about 1.04 million new homes sold for October.

Meanwhile, the volume of new homes on the market dropped 0.7% to 558,000, marking the third straight decline. The inventory represents a seven-month supply at the current sales pace, up from 6.7 months in September; it peaked at 7.2 months in July.

Sales are reported when a contract is signed, not at the closing of the sale. Home builders have reported a large increase in cancellations in recent months. Cancellations are not reflected in the government data, so the reported sales are likely overstated.

The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions are common, and it can take up to six months for a trend in sales to emerge.

The standard error of 11.2% is so high, in fact, that the government cannot be sure sales decreased at all in October. The 3.2% decline is statistically meaningless.

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