The Dow Jones Industrial Average rose 95.96 points, or 0.28 percent, to 34,194.06. The S&P 500 rose 23.68 points, or 0.59 percent, to 4,027.26. The Nasdaq Composite Index increased 110.91 points, or 0.99 percent, to 11,285.32.
Ten of the 11 primary S&P 500 sectors ended in green, with consumer discretionary and communication services up 1.33 percent and 1.22 percent, respectively, outpacing the rest. Energy slipped 1.16 percent, the lone declining group.
The U.S. dollar tumbled with the dollar index, which measures the greenback against six major peers, falling 1.07 percent to 106.0760 in late trading.
The above market reactions came after the minutes from the Fed's November meeting released Wednesday showed that most policymakers favored slower tightening pace soon.
While noting that inflation had still not shown significant signs of abating, "a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate," said the minutes.
"A slower pace in these circumstances would better allow the committee to assess progress toward its goals of maximum employment and price stability," the minutes added.
The suggestion reinforced expectations that the central bank will raise interest rates by 50 basis points at its next meeting in mid-December, rather than the 75 basis-point hike it delivered at each of its past four meetings.
Investors also sifted through Wednesday's data that pointed to a slowing U.S. economy.
November saw a solid contraction in business activity across the U.S. private sector, according to the "flash" data from S&P Global.
Flash U.S. Manufacturing PMI (Purchasing Managers' Index) dipped to 30-month low of 47.6 in November, while flash U.S. Services Business Activity Index dropped to 46.1 from 47.8 in October. Any number below 50 indicates a contraction in the sector.
Elsewhere, the U.S. Labor Department said the nation's jobless claims, a rough way to measure layoffs, rose by 17,000 to 240,000 in the week ending Nov. 19.
Selling equities and buying the U.S. dollar have been winning trades this year, as the Fed has tightened financial conditions to curb inflation. In recent weeks there has been a partial reversal of these trends as softer U.S. inflation data prompted hopes of a Fed policy pivot.
Yet, experts cautioned that the recent reversal in risk appetite may not prove durable and investors should be prepared for further market volatility.
"It's too early to expect a Fed pivot," as prices are not decreasing broadly or rapidly enough to mollify the Fed, said UBS analysts.
"For now, we can be pretty confident that the Fed will continue to hike rates into 1Q23 and growth will continue to slow, a combination that's not good for risk assets," they added.
Experts noted that the medium-term market outlook mainly hinges on how much and how quickly inflation and economic growth fall, and how Fed policy reacts to the evolving macroeconomic landscape.
The U.S. stock market will be closed on Thursday for the Thanksgiving holiday and will close early on Friday.
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