NEW YORK (TheStreet) -- Stocks held onto modest gains in the final hour of trading after the Federal Reserve provided an upbeat assessment of the U.S. economic recovery.
The economy rebounded at a modest to moderate pace over the period from early April to late May, according to the Fed's Beige Book, an anecdotal collection of economic conditions across the 12 districts. Consumer spending, a key GDP component that has lagged in recent months, appeared on the rebound as the metric increased in 10 of the 12 districts.
However, the energy downturn continued to hurt manufacturing growth with drilling declines in five districts, including Dallas and Kansas City, the central bank said.
The S&P 500 was up 0.38%, the Dow Jones Industrial Average rose 0.55% and the Nasdaq added 0.55%.
Crude oil prices dropped nearly 3% and gave up a level above $60 a barrel ahead of Friday's meeting of the Organization of the Petroleum Exporting Countries. The group is expected to maintain current record production levels despite global oversupply.
"The OPEC stance is currently believed to be one of maintaining the 30 million barrel a day production level, which means the expectation of additional Iranian output is yet another bear in the market - currently oversupplied by 2.5 million barrels a day," said Daniel Holder, commodity analyst at Schneider Electric.
West Texas Intermediate settled at its lowest level in a week, down 2.6% to $59.64, though remained around $20 higher than a January low.
European Central Bank President Mario Draghi said in a press conference that eurozone inflation had "bottomed out" at the beginning of the year due to monetary policy, falling oil prices and a weaker euro. The ECB raised consumer inflation forecasts to 0.3% for the full year, up from a previously expected flat reading.
Draghi's remarks caused German government bonds to slip on Wednesday with the yield on Germany's 10-year bond briefly rising to 0.82%, its highest level since November, before retreating slightly. U.S. Treasuries followed suit with the 10-year bond hitting a three-week high of 2.34%.
Utilities, often viewed as a lower-risk, low-growth equities alternative to bonds, sold off on the spike in yields. ConEdison (ED), Duke Energy (DUK), National Grid (NGG) and PG&E (PCG) were all lower, while the Utilities SPDR ETF (XLU) fell 1.6%.
Jeffrey Gundlach, bond investor and chief investment officer of Doubleline Capital, said he doesn't believe the Federal Reserve will hike rates this year, which will prove a negative for the Treasury market.
"If the Fed doesn't raise rates, that's bad for the long bond because the bond wants it to tighten. And it's positive for stocks because stocks love their friend -- zero interest rate policy," he told CNBC.
The ECB kept its key interest rates unchanged at lows on signs the eurozone is steadily improving thanks to the central bank's monthly bond purchases. The ECB left its main interest rate at 0.05%, a level it has remained at since last September. Analysts expected the ECB to leave the rate steady.
European markets rallied after Draghi's comments. Germany's DAX closed 0.8% higher, France's CAC 40 added 0.59%, and the FTSE 100 in London added 0.32%.
Crude inventories fell 1.9 million barrels in the week ended May 30. Analysts had expected a decline of 1.7 million barrels after a drop of 2.8 million barrels a week earlier. Inventories have been on the decline as U.S. oil producers shutter unprofitable rigs in the face of lower oil prices.
Non-manufacturing activity expanded at a slower-than-expected rate in May, according to the ISM Non-Manufacturing Index. The measure of the services industry fell back to 55.7, below forecasts for 57.2 after a 57.8 reading in April. Any reading above 50 indicates expansion.
The U.S. trade deficit retreated 19.2% in April to $40.9 billion after hitting a seven-year high of $50.6 billion in March that was tied to West Coast port closures. Economists expected a slightly wider deficit of $43.5 billion. The lower trade deficit will likely boost second-quarter GDP as the economy continues to comb out the kinks from port backlogs.
"The drop back in the trade deficit ... confirms that the spike in March was a temporary surge caused by the ending of the West Coast port dispute in February and possibly the timing of the Chinese New Year holiday," said Capital Economics chief U.S. economist Paul Ashworth.
The U.S. private sector added 201,000 jobs in May, the most jobs added in four months, according to the ADP jobs report. Analysts had expected an increase of 200,000 after 169,000 additions in April.
"The relative strength in today's report is an encouraging sign that the labor market, and the economy, is re-accelerating after a winter slowdown," said Dan Greenhaus, chief strategist at BTIG Research. "One report does not a trend make but in conjunction with other such data points, it appears the second quarter is set to be much better than the first quarter."
The private payrolls data foreshadows Friday's widely anticipated nonfarm payrolls from the Labor Department. Economists expect the U.S. economy to have added 225,000 jobs in May.
Groupon (GRPN) recovered from earlier losses to gain 2%. The stock was lower earlier after Chief Financial Officer Jason Child announced his will step down at the end of July. Brian Kayman, vice president of tax and treasury, will act as interim finance chief. The company also announced a new share buyback authorization which will continue through to August 2017 and add to a previously announced $300 million repurchase program.
Wendy's (WEN) climbed 4% after announcing a $1.4 billion buyback. The company also increased its forecast for full-year earnings to 31 cents to 33 cents a share.
Guess? (GES) was slightly lower despite swinging to a first-quarter profit of 4 cents a share from a loss of 3 cents a year earlier. Revenue slid 8% to $479 million.
Vera Bradley (VRA) shares were down 9.9% after the company reported break-even earnings in the first quarter, 2 cents shy of estimates. Revenue of $101.1 million was down 10% from a year earlier.