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Updated from 4:05 p.m. EST

Blue-chip stocks rose and bonds rallied Wednesday as investors continued to celebrate a dovish turn at the

Federal Reserve

.

Propelled by a 4.5% gain in

Honeywell

( ANT), the

Dow Jones Industrial Average

gained 59.79 points, or 0.55%, to 10,883.51. It touched an intraday high of 10,919 earlier in the session. The

S&P 500

rose 5.31 points, or 0.42%, at 1272.74, closing at a new four-and-a-half-year high. The

Nasdaq Composite

shed 2.41 points, or 0.11%, to 2262.59.

Honeywell rose after a peer in the government contracting space,

Anteon

( ANT), was acquired at a huge premium by

TheStreet Recommends

General Dynamics

(GD) - Get General Dynamics Corporation (GD) Report

. Honeywell also affirmed earnings guidance.

"After today's action, it still looks like we're still stuck in this trading range," said James Park, managing director with Rodman & Renshaw. "Bonds were higher, oil was lower, but we still continue to give back gains through the day. We're hearing mixed things about the market. I think we can expect this for the rest of the year."

The 10-year Treasury was up 19/32 in price to yield 4.45%, while the dollar was sharply lower, posting its biggest one-day decline against the yen since early 2002. Gold continued its two-day slide from record highs, losing $14.60 to $507.30 an ounce.

About 1.61 billion shares traded on the

New York Stock Exchange

, with advancers beating decliners by a 10-to-7 margin. Trading volume on the Nasdaq was 1.73 billion shares, with decliners outpacing advancers 8 to 7.

U.S. stocks rose Tuesday after the

Federal Reserve

raised interest rates a quarter-point to 4.25% and indicated its current tightening campaign is nearing conclusion. The Fed dropped language from its policy statement that had signaled a belief that a low fed funds target was fostering economic growth.

"The committee judges that some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance," policymakers said. Economists say the wording implies that just one or two more interest rate hikes are left.

"We saw a nice rally with follow-through from yesterday's Fed decision as well as the bond market's action today," said Jay Suskind, head of institutional equity trading with Ryan Beck & Co. "We're hopefully going to test 11,000 on the Dow again. People are continuing to think the economy is improving now that the Fed is out of the way."

On the economic front Wednesday, the Commerce Department said the trade deficit widened to $68.89 billion in October from $66.0 billion in September. Economists were expecting the deficit to narrow to $63.0 billion.

"Two-thirds of the increase in the deficit was due to higher energy prices," said Ian Shepherdson, chief economist with High Frequency Economics. "Core exports rose 0.4%, but there was a 2.2% jump in core imports, the third straight big gain. November will be better, but the past year's flat trend in the core deficit seems to be breaking."

Also, the Labor Department said that import prices fell 1.7% while export prices decreased 0.9% in November. The fall in export prices comes after a 0.6% gain in October.

Wednesday morning, Bear Stearns lowered Apple from outperform to peer perform, saying the stock's 130% run-up this year has left it priced for perfection. The research note reads similarly to a downgrade imposed in early November by Prudential.

Bank of America also cut the stock to neutral. Apple shares dropped $2.97, or 4%, to $72.01.

Investment bankers remained busy in the energy space.

FPL

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reportedly is in advanced talks to acquire

Constellation Energy

( CEG) for $11 billion,

The New York Times

reported Wednesday.

The possible deal comes amid resurgent energy prices this week and Tuesday's mammoth merger of

ConocoPhillips

(COP) - Get ConocoPhillips Report

and

Burlington Resources

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.

In Nymex floor trading, crude for January delivery finished at $60.85, down 52 cents, while gasoline was unchanged $1.65 a gallon. Natural gas, which touched an intraday record Tuesday, was lower by 70 cents to $14.68 per British thermal units.

"By this point I think the cold weather has been built into the price," added Pavlik.

Energy prices moved lower after the government said crude inventories were up 900,000 barrels for the week ended Dec. 9. Gasoline inventories rose an unexpected 1.8 million barrels, while distillate stocks declined by 100,000 barrels last week.

By sector, the Philadelphia/KBW Bank Sector index added 0.7%, and the Amex Oil index rose by 1.2%. Elsewhere, the Philadelphia Semiconductor Sector index lost 0.4% and the Nasdaq Biotech index was down 0.9%.

ConocoPhillips wasn't the only company making a sizable acquisition, as

General Dynamics

(GD) - Get General Dynamics Corporation (GD) Report

said it will buy

Anteon International

( ANT) for $2.2 billion, or $55.50 a share. The deal includes General Dynamics taking on $100 million of Anteon's debt. Anteon surged $13.25, or 32.5%, to $54.02.

Shares of

Baidu.com

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slid 6.4% after underwriters on its August initial public offering released 3 million shares from a lock-up provision, facilitating their open-market sale. Baidu.com closed down $4.78 to $69.40.

Shares of

Boeing

(BA) - Get Boeing Company Report

finished higher after the company said Australian airline company Quantas will buy up to 115 of Boeing's 787 Dreamliner planes. Boeing was up 86 cents, or 1.2%, to $71.45.

Video-game stocks were drawing interest after a report showed game sales plunged 18% in November. According to a report by research outfit NPD Group,

Take-Two

(TTWO) - Get Take-Two Interactive Software, Inc. Report

saw retail sales fall 63% last month from a year ago, while

THQ's

(THQI)

sales fell 32%.

Electronic Arts

( ERTS) and

Activision

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had a better month.

Meanwhile, Citigroup cut its rating for Electronic Arts to hold from buy, citing concerns of weaker-than-expected sales of some of the company's products. Shares of Electronic Arts lost $1.46, or 2.7%, to close at $53.68.

Goldman Sachs downgraded

Best Buy

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to in-line from outperform, one day after the electronics retailer's third-quarter earnings missed estimates. The stock, which lost 11.8% on Tuesday, added 75 cents, or 1.7%, to $44.69.

Japan's Nikkei plunged 2% overnight to 15,465 as investors dumped steel shares and gave a cold reaction to a business confidence survey. Other overseas markets were mixed, with London's FTSE 100 up 0.3% to 5521, Germany's Xetra DAX down 0.4% to 5287 and Hong Kong's Hang Seng up 0.2% to 14,976.

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