The policy-setting Federal Open Market Committee began meeting yesterday to discuss whether to trim its bond purchases, also known as quantitative easing.
Many investors expect Fed chairman Ben Bernanke will announce a scale-back of purchases by $10bn a month to $75bn, while keeping rates close to zero.
“The ($10bn) appears to be what investors are looking for, as long as the taper is not bigger than people were expecting the market will react positively,” said Paul Mangus, head of equity research and strategy at Wells Fargo Private Bank.
“The Fed is very aware of how they believe investors will react. They’ve been very skillful about trying to manage expectations.”
A statement with the FOMC’s decision will be released tonight (British Summer Time), followed by a Bernanke news conference.
The Dow Jones industrial average rose 34.95 points or 0.23 per cent, to 15,529.73, the S&P 500 gained 7.16 points or 0.42 per cent, to 1,704.76 and the Nasdaq Composite added 27.853 points or 0.75 per cent, to 3,745.699.
The S&P 500 closed above the key resistance level of 1,700 for the first to since 5 August and is 0.3 per cent below its record high of 1,709.67.
Volume was light with about 5.06bn shares traded on the New York Stock Exchange.