"In all, the Fed has just committed to providing another $800 billion in liquidity, though it will take time. Let's hope that 'help is on the way' is enough to tide the markets over until next year," said Stephen Stanley, Chief Economist at RBS Greenwich Capital.
After an initial triple-digit rise, the Dow Jones Industrial Average meandered in positive and negative turf before finishing at 8,479.47, up 36.08 points, or 0.4%.
The Dow's last three-day streak of gains came towards the end of August.
Of the blue-chip index's 30 components, 16 finished on higher ground, with J.P. Morgan Chase & Co. pacing the advance, up 7.9%.
United Technologies Corp. proved the Dow's largest laggard, with its shares sliding 4%.
The S&P 500 added 5.58 points to 857.39, as telecommunication services, financials and materials fronted gains among the index's 10 industry groups.
Consumer staples led declines among S&P's sectors.
The technology-heavy Nasdaq Composite fell 7.29 points to 1,464.73.
Shares of Cisco Systems Inc. fell 6% on reports it plans to shutter its U.S. and Canadian operations for the last week of December to cut costs. .
Also weighing on the technology sector, shares of Hewlett-Packard Co. fell 5.9% amid speculation by some analysts that the technology company was overly optimistic in maintaining its relatively strong outlook for 2009. .
Volume on the New York Stock Exchange neared 1.9 billion, and advancers ousting decliners more than 2 to 1. On the Nasdaq, more than 1 billion shares traded, and advancers topped decliners 5 to 4.
Pay it back
Before the opening bell, the Federal Reserve unveiled a plan to lend up to $200 billion to back the issuance of debt, including student, auto and credit-card loans as well as those backed by the Small Business Administration. .
That announcement overshadowed data that showed the U.S. economy contracting at a 0.5% annual rate in the third quarter, slightly faster than initially estimated.
The GDP data helped spark a rally in Treasury prices, pushing yields lower. .
A separate report showed home prices in 20 major cities falling by 1.8% in September from the month before, and by a record 17.4% from the prior year. .
Crude-oil futures fell as concerns over a sharp slowdown in energy demand weighed on sentiment. Crude for January delivery fell $3.73 to close at $50.77 a barrel.
Separately, falling gas prices bolstered consumer sentiment in November, according to the Conference Board's latest monthly survey, which showed confidence climbed from a record low in October.
"While the bounce in consumer confidence this morning is encouraging, with the labor market continuing to deteriorate, the economic data likely to weaken further in the near term, and the volatility in financial markets expected to persist -- at least through year end -- the confidence figure could resume its decline in coming months," said Michelle Girard, U.S. strategist at RBS Greenwich Capital.
In another illustration of the banking sector's troubles, the Federal Deposit Insurance Corp. reported bank loan losses climbed during the third quarter, but the reserves set aside for future problems didn't keep pace. .
Meat-packer Hormel Foods Corp. reported solid fourth-quarter sales growth, but it also said losses on an investment trust dragged profits down.
Home builder D.R. Horton Inc. said its fourth-quarter loss swelled to $800 million, mostly due to unsold inventory and big losses on land disposal. .
Overseas, most Asian markets gained.
Stocks in Europe reversed off early lows to edge higher .
On Monday, U.S. stocks climbed for a second straight session as the government backed more than $300 billion of Citigroup Inc. assets and President-elect Barack Obama formally unveiled his economic team. .
On Tuesday, Obama named Peter Orszag, a Washington insider and protégé of Robert Rubin, as his budget chief, while saying his first priority would be to get the economy back on track.
By Kate Gibson