Updated from 4:05 p.m. EST

Stocks closed higher in volatile trading Tuesday, as the Fed kept interest rates unchanged at 1% while continuing to say it could be patient about policy changes.

The Dow led the way, gaining 81.78, or 0.81%, to 10,184.67, thanks partly to 3M's ( MMM) 5% gain. The S&P 500 added 6.21, or 0.56%, to 1110.70, and the Nasdaq was up 3.88 points, or 0.2%, to 1943.08 after losing much of an early 1% gain.

Volume on the New York Stock Exchange approached 1.5 billion shares, where advancers outnumbered decliners by about 5 to 4. Almost 2 billion shares changed hands on the Nasdaq, where decliners had a slight edge on advancers.

The 10-year Treasury note gained 20/32, with the yield down to 3.69%, after being down before the Fed's statement. Crude oil and gold prices were even on the day.

"The only slight difference in this Fed statement was that they did give some credence to the fact that companies are not hiring and employment is lagging here," said Paul Mendelsohn, a chief investment strategist with Windham Financial Services who sees a variety of factors working against the stock markets now.

Mendelsohn pointed to high oil prices, renewed fears related to terrorism -- coupled with al Qaeda's apparent ability to influence the election process in Spain -- and uncertainty about the permanence of the Bush tax cuts as all being negatives.

"The Committee continues to believe that an accommodative stance of monetary policy, coupled with robust underlying growth in productivity, is providing important ongoing support to economic activity," said the Fed in its policy statement. "With inflation quite low and resource use slack, the Committee believes that it can be patient in removing its policy accommodation."

"This was pretty much a nonevent," said John Hughes, an equity strategist at Shields & Co. "Rates are low. They're going to stay low for a while. There's no sign that anything is really different, or that they're going to raise rates, and stocks are basically where they were before the announcement."

Although no action on interest rates was expected, investors were looking for any changes in the Federal Open Market Committee's assessment of the economy following February's weak employment report, and the statement did say that "new hiring lagged."

The Fed's last policy statement roiled the markets when it dropped its commitment to keep rates on hold for a "considerable period," saying instead that it could be "patient" about removing its policy accommodation.

Prior to the Fed's decision, afternoon trading had been buffeted by various terror-related rumors circulating on trading desks, none of which appeared to bear out. Weakness in Oracle ( ORCL) and Microsoft ( MSFT) contributed to the Nasdaq's deterioration, but both stocks ended slightly higher.

Stocks are coming off another pasting -- the third major decline in four sessions -- in which the Dow fell 1.3% to 10,103 Monday. The Nasdaq fell 2.3% to 1939, while the S&P gave up 1.4% to 1104. Monday's selling followed renewed terrorism concerns as evidence increasingly pointed to an al Qaeda role in the Madrid train bombings last week.

In other trading, the dollar lost ground against the yen, buying 108.84 yen compared to 110.28 at Monday's close. The euro was weaker, buying $1.2264, compared to $1.2271 Monday.

In Europe, London's FTSE 100 closing up 0.4% to 4429 and Germany's Xetra DAX up 0.3% to 3822. In Asia, Japan's Nikkei fell 0.7% to 11,242, while Hong Kong's Hang Seng gained 0.1% to 12,933.

There was early bullishness Tuesday because of a survey from employment firm Manpower ( MAN), which found that more U.S. companies expect to add jobs in the second quarter than during any three-month period going back to 2001. Of the 16,000 U.S. employers surveyed, 28% said they plan to increase hiring activity, while 6% expect a decrease in employment opportunities.

Meanwhile, housing starts fell to 1.855 million units in February, vs. a consensus forecast of 1.930 million. Building permits hit 1.903 million units, slightly above forecasts.

In company news Tuesday, 3M traded up $3.83, or 5.1%, to $78.70 following a bullish first-quarter earnings update. The company said it will beat analysts' forecasts on better-than-expected sales, citing strength in its graphics and display units.

Metro-Goldwyn Mayer ( MGM) gained $1.99, or 12.3%, to $18.19 after the company confirmed it's considering paying a one-time dividend distribution to investors as part of its pledge to return money to shareholders.

Tenet Healthcare ( THC) said it lost $954 million in the fourth quarter because of a $1.5 billion restructuring charge related to its efforts to sell more than two dozen hospitals. Revenue fell 9% from a year ago, and the company, whose Medicare billing is the subject of several investigations, warned it could produce as much as $600 million in negative cash flow this year. Shares closed up 50 cents, or 5.1%, to $10.31.

And Safeco ( SAFC) entered an agreement to sell its life and investment businesses to a group led by White Mountain Insurance and Berkshire Hathaway ( BRK.A). Safeco will collect about $1.35 billion for the operations. It shares closed down 85 cents, or 1.9%, to $43.01.

Lehman Brothers ( LEH) said quarterly profit more than doubled, driven by higher revenue from bond trading and underwriting, stock sales and mergers. The New York investment bank reported that its net income rose to $670 million, or $2.21 per share in its first quarter, compared to $301 million, or $1.15 a share, a year earlier. Its shares closed up 41 cents, or 0.5%, to $85.06.

On Wednesday, the government reports retail inflation figures for February. According to consensus estimates, economists expect the Consumer Price Index rose 0.3% in February, compared to a 0.5% gain in January. Excluding volatile food and energy prices, the index is forecasted to have grown 0.1% compared to 0.2%.

Earnings reports are due out before the opening bell from FedEx ( FDX), forecasted to report third-quarter earnings per share of 67 cents compared to last year's 49 cents; Actuant ( ATU), predicted to report second-quarter earnings per share of 36 cents compared to last year's 29 cents; and Bear Stearns ( BSC), expected to report first-quarter earnings per share of $2.05 compared to last year's $2 a share.