Dow back above 11,000

NEW YORK (CNNMoney.com) -- The Dow gained Wednesday after the Federal Reserve said that economic activity is picking up, and that it will hold a key short-term interest rate steady for an extended period of time.

The broader market was mixed as investors considered European debt issues and a batch of quarterly earnings reports.

The Dow Jones industrial average (INDU) gained 53 points, or 0.5%, reclaiming the 11,000 level it lost in the previous day's selloff. The 11,000 level has psychological meaning, but is not a key technical level for traders.

The S&P 500 index (SPX) added 7 points, or 0.7%, closing above 1,185, a key support level. The Nasdaq composite (COMP) was barely changed.

Stocks had surged more aggressively in the first 90 minutes after the roughly 2:15 p.m. ET Fed announcement but gave up bigger gains late in the session.

Stocks had struggled earlier as earnings news competed against euro zone debt worries after Standard & Poor's cut Spain's rating, one day after lowering Portugal's debt rating and cutting Greece's rating to junk. The downgrades pummeled U.S. stocks Tuesday and also dragged on international markets Wednesday.

But the Fed announcement seemed to reassure investors, as it offered both a positive take on the economy and promised no change in interest rates for the foreseeable future.

After the close Wednesday, Hewlett-Packard (HPQ, Fortune 500) said it was buying smartphone maker Palm (PALM) in a $1.2 billion all-cash deal that values Palm at $5.70 per share. The deal puts an end to months of takeover rumors regarding the struggling company, a leader in the handheld device market that has struggled amid the rise of smartphones.

Fed: The central bank held the fed funds rate steady at historic lows near zero, as expected, and also said that conditions "are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

Once again, Federal Reserve Governor Thomas M. Hoenig dissented, objecting to the "extended period" phrase on worries about inflationary concerns.

The bankers also talked up the economy, saying activity has strengthened, the labor market is starting to improve and household spending has picked up a bit, but not enough to drive inflation.

The report offered no surprises, said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez.

"People were expecting them to be incrementally more positive about the economy, as they have been in the last few statements, to keep the 'extended period' phrase and for Hoenig to dissent again," Shapiro said.

"A few people may have been anticipating a surprise but I think everybody else had their expectations fulfilled," he said.

Greece: The country is facing a May 19 deadline for refinancing about $11.4 billion in debt and investors are worried it could default. Although Greece has gotten the OK to access over $53 billion in loans from the European Union and the International Monetary Fund, the funds have not yet been made available.

But worries were partly allayed Wednesday on reports that the loan package could be increased to as much as $160 billion. Additionally, Germany -- the largest of the 16 euro zone countries -- said its portion of the initial loan package could be approved by the end of next week. Germany's perceived reluctance to ante up has added a layer of uncertainty to the proceedings.

Following the reports, the cost of insuring Greek debt dropped from record highs hit in the morning, and the euro bounced back versus the dollar after falling to a one-year low.

Quarterly results: Another batch of better-than-expected quarterly results helped give stocks some support.

Roughly 82% of earnings have topped estimates. Should that figure hold up, it would be the highest percentage of companies beating expectations in Thomson's history.

Dow Chemical (DOW, Fortune 500) reported higher quarterly sales and earnings that topped estimates, as higher pricing boosted global sales. Shares gained almost 6%.

Defense contractors General Dynamics (GD, Fortune 500) and Northrop Grumman (NOC, Fortune 500) both reported higher quarterly earnings that topped estimates. General Dynamics reported weaker revenue that missed forecasts. Northrop Grumman reported higher revenue that topped estimates and also lifted its 2010 profit outlook. Both company's stocks posted slim gains.

AOL (AOL) reported quarterly earnings and revenues that fell from a year ago and missed expectations, as the company contended with dwindling sales and a weakening subscriber base. Shares fell 14.5%.

With 48% of the S&P 500 having reported results, earnings are on track to have grown 52% from a year earlier and revenues 12%, according to the latest info from tracker Thomson Reuters.

Among other movers, financial shares advanced, with JPMorgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and SunTrust Banks (STI, Fortune 500) among the issues boosting the KBW Bank index. A rally in commodities gave a lift to oil, metal and mining shares.

World markets: In overseas trading, European markets were lower, with France's CAC 40 down 1.5%, Germany's DAX down 1.2% and London's FTSE down 0.3%.

Asian markets fell, with Hong Kong's Hang Seng index down 1.5% and Japan's Nikkei down 2.6%.

The dollar and commodities: The dollar gained versus the euro and the yen.

U.S. light crude oil for June delivery rose 78 cents to settle at $83.22 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $9.60 to settle at $1,171.80 per ounce.

Bonds: Treasury prices fell, raising the yield on the 10-year note to 3.77% from 3.69% Tuesday. Prices had rallied Tuesday as stocks slumped, with investors seeking safety in government debt. Treasury prices and yields move in opposite directions.