Updated from 4:13 p.m. EDT

Stocks shook off a rally in energy prices and closed solidly higher Wednesday, lifted by a

Fed

official's dovish pronouncements on interest rates and another economic report showing tame inflation.

The

Dow Jones Industrial Average

rose 81.35 points, or 0.78%, to 10,548.83. Earlier in the day, the Dow had been up more than 100 points. The

S&P 500

gained 10.72 points, or 0.9%, to 1202.22, and the

Nasdaq Composite

added 19.64 points, or 0.95%, to 2087.86. The 10-year Treasury note also rallied, rising 24/32 to push its yield down to 3.89%, a 14-month low.

Trading on the

New York Stock Exchange

closed about four minutes early because of a communications snafu. Big Board volume was 1.80 billion shares, with advancers beating decliners by a 3-to-1 margin. Volume on the Nasdaq was 1.81 billion shares, with advancers outpacing decliners 2 to 1.

Meanwhile, oil spiked, with July crude moving above $54 a barrel ahead of Thursday's weekly report on energy inventories from the U.S. government. The contract closed at $54.60 a barrel, up $2.63 from yesterday's close.

"The price of oil impacts what people think it will do to earnings," said Robert Pavlik, portfolio manager with Oaktree. "The market added back some points, which is very encouraging. It tells me there is more room in the short term for the market to continue higher and investors want to participate."

Markets caught a tailwind just before 10 a.m. EDT when Dallas Fed President Richard Fisher said the central bank is "getting closer" to the end of its interest rate-tightening campaign. Speaking on

CNBC

, Fisher said he expects another quarter-point increase at the next meeting, after which, "we'll see."

The Fed has raised rates eight straight times, most recently adding a quarter-point to push fed funds to 3% on May 3.

"I'm surprised he said the Fed is close to the end of the cycle," said Tim Heekin, head of stock trading with Thomas Weisel Partners. "We've enjoyed these historically low rates for a while. It just seems to me that we have easily another 30% to 50% to go without stifling economic growth."

Fisher's comments had an immediate impact on the fed funds futures market, where odds for a quarter-point hike at the FOMC's Aug. 9 meeting fell to 70% from 89% earlier today. A quarter-point increase at the June 30 meeting remains fully priced in, while market odds for a third hike at the Sept. 20 meeting went from 24% to 0%.

Stocks also were helped early Wednesday by the Institute for Supply Management's manufacturing index, which came in at 51.4 for May, slightly below expectations of 52. The prices-paid component lost 13 points to 58. Stock and bond investors see the numbers as supporting interest rate doves at the Fed, although the numbers also could be read as bearish for future profits.

"The data were weaker than expected, which would bring up concerns of economic growth," said Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum. "However, the prices paid were dramatically lower, showing that inflation wasn't a concern. The market is celebrating interest rates going down, as well."

Ian Shepherdson, chief economist with High Frequency Economics, also points out "the steep drop in the prices paid index, to a 20-month low of 58.0, thanks to the drop in oil prices from their April peaks. This is welcome, but not fundamental to the Fed's decision-making: Labor costs are key."

In another economic report, the Commerce Department said U.S. construction spending increased 0.5% in April to a record $1.07 trillion annual rate. Economists expected a gain of 0.7% in April. March figures were revised higher to a 0.6% gain from 0.5%.

The Dow was boosted by gains in

Exxon Mobil

(XOM) - Get Report

,

IBM

(IBM) - Get Report

, and

Alcoa

(AA) - Get Report

, all of which were up more than 1.7%.

The euro's slide continued as Dutch citizens voted against another referendum on the EU constitution. The currency has lost more than 9% against the dollar this year to recently trade near an eight-month low of $1.2240, down from around $1.2584 before French voters rejected the charter on Sunday. The dollar also rose against the yen.

Virtually all sectors showed strength on Wednesday, with energy, tech, materials and health care leading the way. Only airlines and telecom services were weaker.

In company news, CSFB raised its price target on

Google

(GOOG) - Get Report

to $350 a share after the stock took out the firm's old target of $275. Shares of the Internet company repeatedly touched all-time highs in May as optimism continued to grow about its ability to dominate the market for paid search. Google gained $9.96, or 3.6%, to $287.23, a new all-time closing high.

Shares of homebuilder

Hovnanian

(HOV) - Get Report

came under pressure last night after the company forecast a third-quarter earnings shortfall that it believes will be made up in the full year. Hovnanian, whose second-quarter profit jumped 50% from a year ago, put third-quarter earnings at $1.70 a share, a dime below estimates.

For the year, Hovnanian sees earnings of $7 a share, about 7 cents above the Thomson First Call consensus. Shares fell $1.33, or 2.1%, to $60.77.

Ford

(F) - Get Report

on Wednesday reported an 11% decline in U.S. sales for the month of May. Truck sales fell 13% during the month.

General Motors

(GM) - Get Report

said that auto sales in May declined 5%, with truck sales down 7% and car sales off 1%. For GM, the situation is exacerbated by a high level of sport-utility vehicles sitting on dealers' lots, which it reportedly hopes to address by offering steep price discounts starting this week.

Ford was down 6 cents, or 0.6%, to $9.92. GM was off by 14 cents, or 0.4%, to close at $31.39.

Billionaire investor Carl Icahn reiterated his proposal to acquire generic drugmaker

Mylan Laboratories

(MYL) - Get Report

for $20 a share. Icahn submitted his offer almost six months ago, but said that Mylan's executives have failed to spur any discussions with Icahn since. Shares rose 74 cents, or 4.5%, to $17.24.

Retailer

Kohl's

(KSS) - Get Report

said after the bell Tuesday that same-store sales rose 0.2% in May compared with a year earlier. The company reiterated second-quarter profit guidance of 49 cents to 52 cents a share. Kohl's was higher by $2.36, or 4.8%, to $51.05.

Altera

(ALTR) - Get Report

expects second-quarter revenue to be at the high end of its prior forecast of $275 million to $278 million. Analysts expect revenue of $276 million, according to Thomson First Call. Shares dipped 1 cent, or 0.05%, to finish at $22.17.

SBC Communications

(SBC)

on Wednesday announced it will offer high-speed Internet access service to new residential subscribers for $14.95 a month when customers order SBC Yahoo DSL Express online. The special price is lower than some of SBC's competitors' offers for dial-up Internet service. SBC lost 10 cents, or 0.4%, to $23.28.

Late Tuesday,

Nortel Networks

(NT)

said that in the first quarter the company lost $49 million, or a penny a share, compared with net earnings of $59 million, or a penny a share, a year ago. Revenue rose to $2.54 billion from $2.44 billion. Analysts had expected flat earnings on revenue of $2.5 billion, according to Thomson First Call. Nortel added 20 cents, or 7.7%, to $2.79.

Computer services company

Navarre

(NAVR)

late Tuesday said it would postpone the release of its fourth-quarter and fiscal year 2005 results, adding that it may have to restate past statements to reflect noncash charges. Navarre was expected to report earnings Wednesday morning. Shares fell 97 cents, or 10.8%, to $8.02.

Shares of

Tibco Software

(TIBX)

were higher one day after the company said preliminary results indicate second-quarter earnings will miss expectations because of a slowdown in closing deals. Tibco, which gained 0.2% Tuesday, rose another 35 cents, or 5.5%, to $6.69.

In rating news, brokerage J.P. Morgan cut auto-parts maker

Delphi

(DPH)

to underweight from neutral, believing that General Motors will not rescue the company in the same way that

Ford

(F) - Get Report

helped

Visteon

(VC) - Get Report

last week. Delphi was up 4 cents, or 0.9%, to close at $4.39.

Overseas markets were higher, with London's FTSE 100 adding 1% to 5011 and Germany's Xetra DAX rising 1.5% to 4527. In Asia, Japan's Nikkei added 0.5% overnight to 11,330 while Hong Kong's Hang Seng rose 0.1% to 13,873.

To view Gregg Greenberg's video take on today's market, click here

.