Stocks recovered from earlier losses triggered by disappointment over the Conference Board's consumer confidence index, which slipped further than expected and raised the possibility that the economy may be moderating faster than hoped.

The market initially waffled after the release of the minutes from the Fed's Aug. 8 meeting, when the central bank refrained from raising interest rates. Wall Street had become cautiously optimistic that the Fed's two-year campaign of 17 straight rate hikes is over, especially given recent economic reports that pointed in that direction.

The minutes said the pause in rate hikes would give the central bank time to determine if the increases have contained inflation without slowing the economy's growth too far, but it did not rule out further credit tightening.

"The Fed initially knocked the market down, but once that was away and people realized it wasn't as bad as it could have been, buyers came into the market and took it up," said Todd Leone, managing director of equity trading at Cowen & Co. "The Fed is being vigilant on inflation, and we're seeing evidence the economy is slowing down. They have to portray a tough stance."

The minutes showed that the central bank believed another rate increase "could well be needed" to slow inflation and orchestrate an economic soft landing. But, the market largely discounted the comment since a series of reports, including slowing home sales and the latest consumer confidence numbers, indicated the economy is indeed slowing.

The Standard & Poor's 500 index advanced 2.50, or 0.19 percent, to a three-month high of 1,304.28.

Other stock indicators were higher. The Dow Jones industrial average was up 17.93, or 0.16 percent, to 11,369.94, and the Nasdaq composite index rose 11.60, or 0.54 percent, to 2,172.30.

The Fed minutes led to a rally in the bond market, where the yield on the 10-year Treasury note fell to a five-month low of 4.78 percent. The dollar was mixed against other major currencies, while gold prices fell.

Bryan Piskorowski, a market analyst at Wachovia Securities, said he found little that was surprising in the Fed's stance. Markets typically bounce after minutes are released while stock and bond investors scrutinize the comments for clues about Fed interest rate policy.

"There's some fear the Fed, after being heavy handed with monetary policy, has gone too far," he said. "But, Fed policy is a slow moving beast, and it takes a while to percolate through the economy. We're at that point now where we're seeing signs of slowing economic growth, and that they'll now make their decisions on a data-by-data basis."

Further evidence could come this week. The government tomorrow will release both preliminary second-quarter gross domestic product numbers and personal income and spending reports. More key data comes Friday when the Labor Department releases its nonfarm payroll data for August.

Propping up the markets for the past two sessions has been a drop in energy prices, as Tropical Storm Ernesto appeared likely to hit Florida instead of oil and gas platforms in the Gulf of Mexico. A barrel of light, sweet crude fell 90 cents to $69.71 on the New York Mercantile Exchange.

However, the drop in crude prices caused major oil companies to lose ground on the possibility of a revenue dip. Exxon Mobil Corp., the world's largest publicly traded oil company, fell 87 cents to $69.23. Chevron Corp. gave up 73 cents to $65.43, and BP PLC dropped $1.30 to $67.

Consumer oriented stocks, like retailers, and transportation companies again posted gains. Both sectors typically rally when fuel prices wane, an indicator consumers might have more money to spend.

The session was marked by continued slow summer volume, which is expected to remain until after Labor Day, and little corporate news. German drug maker Bayer AG shed 11 cents to $50.48 after it announced a restructuring plan for its CropScience unit that will lead to about 1,500 job cuts by the end of 2009, mainly in North America.

Bookstore chain Barnes & Noble Inc. received a subpoena regarding its stock option practices from the U.S. Attorney for the Southern District of New York, following a similar move by the Securities and Exchange Commission. The stock dropped 17 cents to $35.10.

Positive results from home furnishings retailer Restoration Hardware Inc. late yesterday sent the company's shares up $1.04, or 17 percent, to $7.18. Boeing Co. declined 94 cents to $73.78, a day after the aircraft manufacturer said it would repurchase up to $3 billion of its own stock.

The Russell 2000 index of smaller companies rose 8.20, or 1.16 percent, at 714.85.

Declining issues outnumbered advancers by 2 to 1 on the New York Stock Exchange, where preliminary consolidated volume came to 2.19 billion shares, compared to 1.86 billion at the same point Monday.

Overseas, Japan's Nikkei stock average rose 0.81 percent. At the close, Britain's FTSE 100 was up 0.17 percent, Germany's DAX index fell 0.14 percent, and France's CAC-40 rose 0.23 percent.