Stocks soared Wednesday, notching its best day for 2005, after a slide in oil prices and a moderate rise in the gross domestic product eased investors' inflation fears.

Traders also attributed Wednesday's gains to technical strength. On Tuesday, the S&P 500 hit an intraday low for 2005, while the Nasdaq closed at a fresh 2005 low, but investors were encouraged that stocks did not fall below those levels.

The Dow Jones industrial average (search) was up 135.23 points, or 1.30 percent, to close at 10,540.93, while the Standard & Poor's 500 Index (search) was up 16.05 points, or 1.38 percent, to end at 1,181.41. The Nasdaq Composite Index (search) was up 31.79 points, or 1.61 percent, to finish at 2,005.67.

All three major indexes saw their biggest one-day point gains since Dec. 1.

"We had a nice technical bounce back from yesterday," said Mark Bryant, senior vice president at Brean Murray. "And add to that, the fact that oil acted pretty well, meaning it did end lower. Those are the factors that have been driving the market today."

Crude for May delivery settled at $53.99 a barrel, down 24 cents, on the New York Mercantile Exchange (search), after a government survey showed crude inventories rose sharply last week. Earlier in the day, oil had traded down more than $1.00 a barrel, but pared losses late as heating oil rallied. High oil prices hurt consumer spending and corporate profits, so a price drop generally helps stocks.

According to the Commerce Department (search), the fourth-quarter GDP grew at an annual rate of 3.8 percent, less than the 4 percent economists forecast. However, the department's price index rose 2.9 percent for the quarter, more than Wall Street expected. The question facing investors now will be whether middling economic growth will sap pricing power from corporations and rein in further price increases.

"Normally you wouldn't see this GDP report as a good thing, but with inflation out there, a little bit less growth is viewed as a positive," said Larry Peruzzi, senior equity trader at The Boston Company Asset Management. "It cools things down just enough, without getting too cold."

Investors were also looking ahead to a pair of economic reports Friday — the Labor Department's (search) March employment figures and the Institute for Supply Management's (search) monthly report on the industrial sector. Economic data, particularly employment data, has been closely watched as the Federal Reserve plots its rate-tightening policy, and Wall Street is eager to know whether the next hike will be a 0.25 percentage point move like all the others, or a more aggressive half-point rise.

"It's hard to see a sustainable advance with the precarious nature of interest rates here and how they're moving higher. Who's to say when that stops?" asked Steven Goldman, chief market strategist with Weeden & Co. in Greenwich, Conn. "Until we get a handle on what's going on with rates it's difficult to know what's next, and that puts a bit of a lid on stocks."

Industrial companies, such as heavy equipment maker Caterpillar Inc. (CAT), lent some support following sharp declines on Tuesday. Caterpillar rose 0.9 percent to $90.54.

Micron (MU), the world's No. 3 maker of computer memory chips, rose 3.6 percent to $10.48 a day after it reported a quarterly profit, reversing a year-earlier loss. The Philadelphia Stock Exchange semiconductor index climbed more than 2 percent. Micron also said it gained market share from rivals based in South Korea and Germany.

Qwest Communications International Inc. (Q) lost 5 cents to $3.74 after a Goldman Sachs analyst said the company would likely continue to pursue a merger with MCI Inc., which agreed to a $7.6 billion takeover by Dow industrial Verizon Communications Inc. MCI rose 37 cents to $24.15, while Verizon was up 7 cents at $34.93.

American International Group Inc. (AIG) lost $1.04 to $57.16 after the company said it will delay filing its annual report. The embattled insurer said it discovered improper documentation for a controversial transaction with a Berkshire Hathaway Inc. unit at the center of state and federal investigations.

Morgan Stanley (MWD) climbed $1.67 to $55.28 after the company said three more executives would leave the brokerage house following a management shakeup. Dissident shareholders and former executives have increased calls for Chief Executive Philip Purcell to resign, saying the departure of other executives won't be enough to right the company.

Shares of The Walt Disney Co. (DIS) rose 45 cents to $28.35 a day after the company officially parted ways with Miramax chiefs Bob and Harvey Weinstein. Disney will retain the Miramax name and film library, and the Weinstein brothers will take the Dimension label and its catalog as the core of a new venture-funded studio.

Trading was active, with 1.68 billion shares changing hands on the New York Stock Exchange, above the 1.46 billion daily average for last year. About 1.75 billion shares were traded on Nasdaq, just under the 1.81 billion daily average last year.

The number of rising stocks outnumbered those on the decline by more than 3-to-1 on the NYSE. On Nasdaq, advancers outpaced decliners by about 2-to-1.

The Russell 2000 index of smaller companies was up 10.27, or 1.7 percent, at 614.90.

Overseas, Japan's Nikkei stock average fell 0.29 percent. In Europe, France's CAC-40 dropped 0.42 percent, Britain's FTSE 100 shed 0.37 percent and Germany's DAX index lost 0.10 percent.

Reuters and the Associated Press contributed to this report.