Analysts attributed the gain to a calming assessment of the economy by the Federal Reserve.

The surprise decline in domestic crude supplies overshadowed a 0.1 percent drop in the government's consumer price index. It was the first decline in 10 months for the index, which encouraged investors, but analysts said soaring energy costs — which might contribute to inflation in the months ahead — were a drag on stocks.

"We had positive economic data across the board," said Arthur Hogan, chief market analyst at Jefferies & Co. "The headwinds are higher energy prices."

The Dow Jones industrial average rose rose 18.80, or 0.2 percent, to 10,566.37 after modest gains Monday and yesterday.

Broader stock indicators also rebounded. The Standard & Poor's 500 index rose 2.67, or 0.2 percent, to 1,206.58. The Nasdaq composite index rose 5.88, or 0.3 percent, to 2,074.92.

Bonds rebounded from earlier losses. The yield on the 10-year Treasury note was 4.10 percent, down from 4.11 percent yesterday. The dollar was lower against other major currencies. Gold prices rose.

In its weekly update on fuel supplies, the government reported an unexpected 1.8 million barrel draw on crude, a deeper decline than analysts expected, as well as a drop in gasoline. The inventory data eclipsed OPEC's announcement that it would increase production by 500,000 barrels later this year if prices don't fall. Analysts said OPEC's decision was largely symbolic and would have little impact on actual output. Light, sweet crude rose 57 cents to settle at $55.57 per barrel on the New York Mercantile Exchange, giving up some of its earlier gains.

Though retreating energy prices in past months were credited for the drop in the Labor Department's CPI reading, the short-term surge in crude sent stock buyers fleeing. Still, with market watchers worried about interest rates and inflation still a primary concern of the Federal Reserve, the improved CPI raised hopes that the central bank will be less aggressive with its rate policy.

The Fed's Beige Book assessment of the nation's economy, released at midday, was also was consistent with "the Goldilocks economy," said Alexander Paris, an economist and market analyst for Chicago-based Barrington Research. The Fed's 12 regional banks described their area's economic activity with such words as "moderate," "solid" and "well sustained."

"The broad expansion is still going on, but a little slower than it was earlier this year," Paris said.

Analysts said the market drew some comfort from the Beige Book, enabling the major indexes to move out of negative territory and finish the day with modest gains.

Conventional wisdom is that Fed policy makers will raise rates for the ninth time when they meet at the end of the month, but investors are split on when the rate hikes, which began a year ago, will end.

Oscar Gonzalez, an economist at John Hancock Financial Services, blamed valuations for 2005's lackluster performance, saying stocks ended last year at such high prices, the more recent good news hasn't helped.

"If you look at the market from the beginning of the year, we are almost treading water at this point," he said. "Maybe investors were hoping that economic data, financial data and profits were going to be even better than what we've seen so far."

Dow component JPMorgan Chase & Co. rose 7 cents to $35.67 after it said it would pay $2.2 billion to settle lawsuits over its handling of Enron Corp.'s fraudulent finances. Like other Wall Street firms, JPMorgan Chase was accused of allowing Enron to continue raising money through stock and bond sales despite its downward spiral.

In earnings, Wall Street firm Bear Stearns Cos. Inc. said its income rose 5 percent from a year ago, based on strength in its institutional stock trading business. Its results beat analysts' estimates by 22 cents a share. Bear Stearns gained 79 cents to $101.12.

Viacom Inc. stock was down 83 cents at $33.81 after the company, whose holdings include CBS, MTV and the Paramount movie studio, said yesterday its board approved a previously announced plan to split in two. One company will be focused on broadcast TV, the other will be built around cable networks.

Tommy Hilfiger Corp. stock was up 11 percent, or $1.22, at $12.46, after it said it was delaying financial statements for the fourth quarter and fiscal 2005, as a result of the previously disclosed regulatory probe.

Decliners and advancers were even on the New York Stock Exchange. Preliminary consolidated volume was 1.83 billion shares, compared with 1.71 billion traded yesterday.

The Russell 2000 index of smaller companies rose 2.80, or 0.4 percent, to 637.19.

Overseas, Japan's Nikkei stock average rose 0.71 percent. In Europe, France's CAC-40 was down 0.32 percent, Britain's FTSE 100 shed 0.54 percent and Germany's DAX index was down 0.94 percent.