Updated from 4:05 p.m. EDT

Stocks closed moderately higher Wednesday, but the gains were tempered as traders geared up for tomorrow's commentary from the

Federal Reserve

.

The

Dow Jones Industrial Average

rose 48.82 points, or 0.45%, to 10,973.56, and the

S&P 500

closed up 6.80 points, or 0.55%, at 1246.00. The

Nasdaq Composite

, which moved on both sides of the unchanged mark, added 11.59 points, or 0.55%, to 2111.84, following a 1.6% plunge Tuesday.

The Dow was aided by gains of 2.5% or more in components

General Motors

(GM) - Get Report

,

Intel

(INTC) - Get Report

and

Exxon Mobil

(XOM) - Get Report

.

"Action was choppy today, which is expected as traders square out positions in front of the Fed announcement," said Paul Mendelsohn, chief investment officer with Windham Financial. "No matter what the Fed does, their policy statement should still be hawkish."

Volume was light again Wednesday. About 1.42 billion shares changed hands on the

New York Stock Exchange

, with advancers outpacing decliners by a 10-to-7 margin. Volume on the Nasdaq was 1.55 billion shares, with advancers narrowly beating decliners 16 to 15.

The 10-year Treasury bond was down 10/32 in price to yield 5.24%. The dollar was higher against the euro and the yen.

Members of the Federal Open Market Committee gathered for the first day of a two-day meeting, with their rate announcement scheduled for Thursday afternoon. Fed funds futures continue to price in virtual certainty that policymakers will carry out their 17th consecutive quarter-point rate hike, bringing the benchmark interest rate to 5.25%.

"We're going to be directionless while we're on Fed watch," said Peter Cardillo, chief market strategist with S.W. Bach. "This market is going to trade sideways until we get the Fed communication tomorrow. There's still some speculation as to how much the Fed raises the fed funds rate. We're also waiting for some clue as to the end of the tightening cycle."

Oil rose after the Energy Department's weekly update on fuel inventories. In Nymex floor trading, crude for August delivery finished up 27 cents to $72.19 a barrel. The report showed an unexpected drop of 1 million barrels in gasoline inventories, while crude stockpiles fell by 3.4 million barrels.

Wednesday morning, Merrill Lynch raised its prediction of the price of oil for the next several years, although the new targets represent declines from current levels. Merrill sees benchmark crude trading in the mid-$60 range for 2006 and 2007, as high inventory levels offset "robust" worldwide demand.

To view Kara Wetzel's video take on today's market, click here

.

Other commodities reversed earlier gains. Gold closed lower by $3.40 to $581 an ounce, and silver dipped 4 cents to $10.15 an ounce, both having traded higher earlier. Meanwhile, copper added 11 cents to finish at $3.29 a pound.

U.S. stocks closed the prior session sharply lower as investors took a cautious view of better-than-expected reports on home sales and consumer confidence. For the session, the Dow lost 1.1% to 10,925, the S&P 500 fell 0.9% to 1239 and the Nasdaq shed 1.6% to 2100.

Ken Tower, chief market strategist with CyberTrader, said, "It was all bad news for the bulls yesterday as stronger than expected economic news added to the impression that the Fed would have to keep raising interest rates for the foreseeable future to keep inflation in check."

Nike

(NKE) - Get Report

said late Tuesday that fourth-quarter earnings fell from a year ago due to an arbitration charge, while its adjusted profit of $1.39 a share was a penny light. Shares slipped $3.91, or 4.7% to close at $79.72.

Warner Music

( WMG) and

EMI

continue to circle each other. In the latest development, EMI rejected a sweetened takeover offer from Warner that values the British music giant at $4.56 billion. EMI has its own offer on the table for Warner worth about $31 a share in cash. Warner Music climbed 88 cents, or 3.2%, to $28.11.

The options-backdating probe continues to spread, as

CNet

(CNET) - Get Report

said it received a grand jury subpoena from federal prosecutors in California seeking information on past option grants. CNet formed a committee last month to investigate whether employees received "backdated" options, the practice that is the subject of a broad

Securities and Exchange Commission

probe. CNet slid 60 cents, or 7.2%, to $7.77.

Meanwhile, memory-chip company

Rambus

(RMBS) - Get Report

said after the close Tuesday that it found discrepancies in its past stock-option award dates, which could force it to record additional noncash charges for previous years. Shares of Rambus tumbled 11.2%, or $2.58, to finish at $20.55.

Another tech company,

Applied Micro Circuits

(AMCC)

, received a subpoena from the U.S. attorney for the Northern District of California requesting documents about its past options practices. The company also has been contacted by the U.S. attorney's office for the Southern District of California, which has opened its own investigation into Applied's option awards. Shares of Applied dropped 17 cents, or 6.5%, to $2.45.

UPS

(UPS) - Get Report

could collect an additional $100 million of annual revenue transporting mail for the U.S. Post Office under an agreement expected to be announced Wednesday.

The Wall Street Journal

says the arrangement could start as early as this Saturday. UPS gained 70 cents, or 0.9%, to $81.20.

Among other names in the news, the board of

Wells Fargo

(WFC) - Get Report

decided to increase the bank's quarterly cash dividend to 56 cents a share from 52 cents. The board also approved a 2-for-1 stock split and a buyback covering up to 25 million shares. Wells Fargo added $1.11, or 1.7%, to $66.25.

Hamburger chain

Wendy's

(WEN) - Get Report

confirmed plans to spin off to its stockholders its remaining holdings in doughnut chain Tim Hortons. Wendy's hopes to spin off the nearly 83% stake, or 160 million shares, by Oct. 1. Wendy's was lower by $1.33, or 2.3%, to $56.41.

J. Crew

( JCG) raised $376 million in its IPO. The apparel company's 18.8 million shares were priced at $20 late Tuesday. Shares finished Wednesday's session at $25.55, after touching a high of $26.

Among ratings moves, Citigroup downgraded chipmakers

Altera

(ALTR) - Get Report

and

Xilinx

(XLNX) - Get Report

to hold from buy, citing limited near-term catalysts.

Altera lost 5 cents, or 0.3%, to $17.05, and Xilinx fell 15 cents, or 0.7%, to $22.34. The Philadelphia Semiconductor Sector index finished lower by 0.6%.

Overseas markets were mixed, with London's FTSE 100 up 0.5% to 5678, while Germany's Xetra DAX was flat at 5457. In Asia, Japan's Nikkei plunged 1.9% overnight to 14,886, and Hong Kong's Hang Seng slipped 0.2% to 15,743.