The Dow Jones industrial average was up 58.91 points, or 0.53 percent, at 11,203.85. The Standard & Poor's 500 Index was up 8.12 points, or 0.63 percent, at 1,305.93. The Nasdaq Composite Index hit a fresh 5-year closing high, ending at 2,345.36, up 8.62 points, or 0.37 percent.
The interest-rate sentiment helped financial shares, as did a better outlook on bank profits. Shares of 3M Co. (MMM), a component of the Dow industrials, rose 1.5 percent as the diversified manufacturer unveiled plans that could result in the sale of its drug business.
Crude oil prices fell nearly 1 percent on forecasts that U.S. crude inventories rose again last week, alleviating some fears that high energy costs would drag on corporate profits.
"The combination of a decline in oil prices, however slight, and some fairly upbeat comments (by Fed officials), may have led Fed watchers to conclude the Fed may raise interest rates at its meeting in May, and then stop," said Hugh Johnson, chief investment officer of Johnson Illington Advisors.
Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond, said the U.S. economy is close to "a balanced growth path," which could mean interest rates have reached a neutral level. Investors also interpreted comments on inflation from Dallas Fed Bank President Richard Fisher as dovish on further interest-rate hikes.
Stocks have struggled to hold onto gains this week, as soft manufacturing data Monday kept investors debating whether the Fed's rate hikes are slowing the economy or not. But many investors were also eager to put fresh money into the market as the second quarter began.
The Dow got one of its biggest lifts from 3M, up $1.16 at $77 on the New York Stock Exchange.
Shares of Citigroup Inc. and JPMorgan Chase , both Dow components, rose after Merrill Lynch analysts raised their first-quarter earnings estimates for the banking companies.
"People were worried the financial companies wouldn't have a strong earnings trend because of the flat yield curve, but now it's been flat for a while, and the earnings are still coming through,"said Alfred Kugel, chief investment strategist at Atlantic Trust/Stein Roe.
Citigroup shares gained 1.7 percent, or 80 cents, to $48.21, making it the top gainer in the S&P 500, after the Federal Reserve Bank of New York lifted a ban that prevented the company from making acquisitions. . JPMorgan's stock was up 1.6 percent, or 68 cents, at $42.27.
Helping the Nasdaq, Google Inc. shares gained 3.8 percent, or $14.64, to $404.34 on Nasdaq. Analysts linked the stock's advance to increasing investor optimism about Google's quarterly results.
Tenet Healthcare Corp. shares shot up 8.4 percent, or 61 cents, to $7.90 on the NYSE just before the close after news that a federal judge in San Diego had declared a mistrial in a lawsuit over hospital referrals.
U.S. crude oil for May delivery fell 51 cents to settle at $66.23 a barrel, after earlier falling as low as $65.60.
Volume on the New York Stock Exchange was moderate, with about 1.51 billion shares changing hands, below last year's daily average of 1.61 billion. On Nasdaq, about 2.08 billion shares traded, above last year's daily average of 1.8 billion.
Advancers outnumbered decliners on the NYSE by a ratio of about 7 to 5, and on Nasdaq, by about 8 to 7.