Stocks turned around following two sessions of losses after a report showed hiring in the U.S. private sector expanded at a faster pace in November. ADP Employer Services said 189,000 jobs were added during the month — an increase that bodes well for consumer spending.

The report raised hopes for a strong November jobs report from the Labor Department on Friday. Investors were also encouraged Wednesday after the department reported worker productivity advanced by an annual rate of 6.3 percent in the summer, the fastest pace in four years, while wage pressures eased.

"The best news for the market is good news on the economy," said Jack Ablin, chief investment officer at Harris Private Bank. "There might be a general malaise among homeowners these days, but as long as more people are getting paychecks then the economy can withstand the stress."

Still, there is enough uncertainty in the economy to bolster the argument for lower rates. The financial sector is still struggling from months of credit problems, and the Institute for Supply Management reported Wednesday that service sector growth slowed in November.

Some investors are betting the Fed will go beyond the generally anticipated quarter percentage point cut, and lower rates by a half point. A mere quarter-point cut could bring some disappointment to Wall Street, but as long as the Fed reiterates an openness to lower rates further in its accompanying economic assessment, the market should move higher, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

"We could see a nice December here," Detrick said.

The Dow rose 196.23, or 1.48 percent, to 13,444.96, resuming the big recovery it launched last week following a mostly dismal November.

The blue chip index got an extra boost from component American International Group Inc., which said that although it's expecting a hefty portfolio writedown in the fourth quarter, the ongoing mortgage crisis is manageable. AIG rose $2.70, or 4.9 percent, to $58.15.

Broader indexes also moved higher. The Standard & Poor's 500 index added 22.22, or 1.52 percent, to 1,485.01, while the Nasdaq composite index rose 46.53, or 1.78 percent, to 2,666.36.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.95 percent from 3.90 percent late Tuesday. The dollar rose, and gold prices fell.

The market is currently pricing in a rate cut next week, Ablin said. Supporting the case for a cut is that central banks globally seem to be open to the idea, a trend that would give the Fed even more room to move.

The Bank of Canada cut rates Tuesday, while the Bank of England and European Central Bank will make rate decisions Thursday.

Investors also weighed a Commerce Department report that showed factory orders unexpectedly rose in October. However, that data was likely offset by a report from the Institute for Supply Management showing growth in the service sector cooled somewhat in November.

Wednesday's advance was fed by investors betting that the Fed might be generous and cut rates a half percentage point, or, in market lingo, 50 basis points.

"I do believe the market wants 50, that the Fed needs to do a lot more work, and that a quarter is not going to do it," said Greg Church, chief investment officer of Church Capital Management.

A resumption of the downtrend in oil prices also contributed to the gains on Wall Street. OPEC decided Wednesday to keep production steady but set a new meeting for Feb. 1 to raise output if prices rise. Meanwhile, the government reported that U.S. oil supplies fell steeply last week while gasoline stockpiles rose, both by greater margins than analysts had expected.

Light, sweet crude fell 83 cents to settle at $87.49 a barrel on the New York Mercantile Exchange.

Fannie Mae shares rose 95 cents, or 2.7 percent, to $36.13 after it followed rival mortgage financer Freddie Mac in cutting its dividend and selling special stock to raise capital. The government-sponsored lender hopes to cushion against mounting losses from high-risk home loans. Freddie rose $2.36, or 7.3 percent, to $34.67.

Technology stocks broadly advanced after Intel Corp.'s stock was upgraded on expectations the personal computer market will be strong next year. Shares added 91 cents, or 3.5 percent, to $27.22.

The Russell 2000 index of smaller companies rose 13.58, or 1.81 percent, to 765.64.

Advancing issues led decliners by a nearly 3 to 1 basis on the New York Stock Exchange. Consolidated volume came to 3.55 billion shares, up from 3.22 billion Tuesday.