Updated from 4:31 p.m. EDT

Stocks in New York closed more than 2% higher Wednesday as an upgrade stoked financials and the U.S. central bank did nothing to derail the upward momentum in the afternoon.

The Dow Jones Industrial Average, which reached its highest level in more than two months, climbed 168.78 points, or 2.1%, to 8185.73, and the S&P 500 gained 18.48 points, or 2.2%, to 873.64. The Nasdaq rose 38.13 points, or 2.3%, to 1711.94.

Worries about swine flu appeared to be dissipating a bit on Wall Street, and banks were stronger after positive comments from analysts at Fox-Pitt Kelton Cochran Caronia Waller. Bank of America ( BAC) gained 6.5% to $8.68, Citigroup ( C) added 8% to $3.12, and JPMorgan Chase ( JPM) rose 5.2% to $34.48 on the Dow.

The major indices rose steadily throughout the day ahead of the Federal Reserve's third monetary policymaking committee meeting of the year. The Fed announced at 2:15 p.m. EDT that its key interest rate will remain at the previously established record low range of 0% to 0.25%, as expected.

The Federal Open Market Committee also said that information received since its last meeting indicates the economy has continued to contract, but at a somewhat slower pace.

"Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time," according to the release. "Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability."

"The key here is that there's no let up, which is what the markets wanted to see," says Brian Bethune, chief U.S. financial economist at IHS Global Insight. "They didn't want the Fed to read too much into recent positive signals and start to backpedal."

The government offered one key reading on the economy before the open. GDP fell at a 6.1% pace in the first quarter, after a 6.3% decline in the fourth quarter, according to the advance estimate from the Bureau of Economic Analysis.

Expectations were for a decline of 4.7%. But an increase in consumer spending and a decrease in inventories, are being viewed as "encouraging" signs, says Bill Stone, chief investment strategist at PNC Wealth Management. Those also followed a better-than-expected reading on consumer confidence for April.

The market has thus far managed to sustain a run-up that started in March without a major pullback, despite "technically overbought" conditions.

"The more it continues to confound people that the market has held in and is grinding its way higher, the more it puts pressure on people to cave into it," says Stone. "You're likely to see that overbought can stay overbought for a while."

But banks could remain highly volatile day-to-day, he says.

Investors were keeping a close eye on annual shareholder meetings for BofA and Morgan Stanley ( MS), which rose 9.4% to $23.07. BofA's board of directors said during the meeting that the results of a shareholder vote on whether CEO Ken Lewis would remain chairman were too close to call and would be disclosed at a later time.

Elsewhere, Citi is asking the Treasury Department for permission to pay special bonuses to a number of key employees, The Wall Street Journal reported. Bonuses have been a highly controversial subject as Merrill Lynch, now part of Bank of America, and American International Group ( AIG) were heavily criticized over bonuses paid while receiving billions in taxpayer aid.

In other financial news, shares of E*Trade ( ETFC) lost 33.7% to $1.63 after it reported a wider-than-anticipated first-quarter loss and disclosed that regulators want it to raise additional capital .

On the other hand, biotechnology company Dendreon ( DNDN) soared. The stock was halted Tuesday as it released key results from a study on its prostate cancer drug Provenge. Shares, which plunged immediately before the halt, rose 94.2% to $22.94.

Shares of telco Qwest ( Q) rose 3.1% to $3.68 after it beat first-quarter profit targets, with help from steep cuts in spending and staff size. Burger King ( BKC) shares rose early after it topped earnings estimates, but fell 3.3% to $16.55 thereafter. Executives reined in full-year earnings guidance on worries about continued economic instability.

Longer-dated Treasuries were recently falling. The 10-year was losing 21/32, yielding 3.08%, and the 30-year was down 27/32 to yield 4.01%. The dollar was recently stronger vs. the yen and euro and flat against the pound.

As for commodities, oil rose $1.34 to settle at $50.97 a barrel, while gold added $6.90 to $900.50 an ounce.

More from Markets

Dow Tumbles as Trump Calls Off North Korea Summit

Dow Tumbles as Trump Calls Off North Korea Summit

Automakers Slump as Trump Tariffs Threaten Both Manufacturers and Consumers

Automakers Slump as Trump Tariffs Threaten Both Manufacturers and Consumers

Jim Cramer: Does Saudi Arabia Think Oil Prices Are Too High?

Jim Cramer: Does Saudi Arabia Think Oil Prices Are Too High?

Stocks Could Easily Crater Into Memorial Day Weekend

Stocks Could Easily Crater Into Memorial Day Weekend

Video: Here Is How Real Estate Investment Trusts Can Boost Your Portfolio

Video: Here Is How Real Estate Investment Trusts Can Boost Your Portfolio