By Sue Chang and Anora Mahmudova, MarketWatch

U.S. stocks hit the day's highs after a Federal Reserve report on Wednesday painted a more optimistic economic picture just two weeks before policy makers meet to discuss whether to raise interest rates for the first time in nearly a decade.

The Federal Reserve's Beige Book said (http://www.marketwatch.com/story/feds-beige-book-finds-wage-pressure-and-china-dollar-concerns-2015-09-02) several district banks "reported increasing wage pressures caused by labor market tightening" a change from earlier reports that noted higher pay in isolated sectors. But there were also reports that the strong dollar and the drop in oil prices were depressing activity, which could argue for holding off on raising interest rates at the Sept. 16-17 policy meeting.

Wednesday afternoon's gains add to the market's rebound from Tuesday's selloff, even as some analysts cautioned against expecting much of a recovery.

The S&P 500 was up 23 points, or 1.2%, to 1,937. The Dow Jones Industrial Average rose 216 points, or 1.3%, to 16,274. The Nasdaq Composite advanced 74 points, or 1.6%, to 4,710.

"The rebound feels just like some of the selling was exhausted yesterday into the bell. We have seen some funds taking hedges off on the S&P 500, but no real demand in single stocks so that is a little disconcerting," said Ian Winer, director of equity trading at Wedbush Securities.

Read:One in five S&P 500 stocks now in bear-market territory for 2015 (http://www.marketwatch.com/story/one-in-five-sp-500-stocks-now-in-bear-market-territory-for-2015-2015-09-02)

The market was higher from the opening bell after U.S. data showed solid private-sector job gains in August and a jump in productivity growth in the second quarter. A somewhat stable trading session in China ahead of the country's long holiday weekend helped. The Shanghai Composite Index slipped 0.2% (http://www.marketwatch.com/storyno-meta-for-guid), and China's stock markets are closed Thursday and Friday (http://www.marketwatch.com/story/china-to-close-stock-market-to-honor-world-war-ii-anniversary-2015-09-01) for the World War II Victory Day parade.

Wednesday's data and the Beige Book as well as the monthly payrolls report due Friday are among the last economic news before the Federal Reserve makes a decision on interest rates at its Sept. 16-17 policy meeting.

Speaking about Friday's jobs report, Michael Arone, chief investment strategist at State Street Global Advisors' US Intermediary Business, predicted it would have something both for those who would like to see rates rise in September and for those who would prefer a delay.

"It is likely to be in line with consensus estimate, but will not give investors a definitive answer as to what the Fed is likely to do. Until the is clarity about the rate policy, we expect volatility to continue in the near term," Arone said.

Read:Where every Fed member stands on raising interest rates (http://www.marketwatch.com/story/where-every-fed-member-stands-on-raising-interest-rates-2015-08-28).

U.S. data: Private-sector employment gains continued in August (http://www.marketwatch.com/story/private-sector-adds-190000-jobs-in-august-adp-2015-09-02-8911922) at a slightly faster pace than in July. Employers added 190,000 jobs last month, Automatic Data Processing Inc. reported Wednesday.

U.S. productivity in the second quarter rose at the fastest pace since the end of 2013 (http://www.marketwatch.com/story/us-productivity-rises-at-fastest-pace-since-end-of-2013-2015-09-02). Factory orders rose 0.4% in July, marking the second month of gains after a strong June (http://www.marketwatch.com/story/factory-orders-rise-for-second-month-in-july-2015-09-02).

"Investors are interpreting the ADP data, showing 190,000 jobs as not big enough for the Fed to go ahead with the September rate hike, but solid enough to indicate there is no spillover from China's weakness into our economy," said John Canally, investment strategist and economist at LPL Financial.

Movers and shakers: Apple Inc. (AAPL) climbed 3% and Microsoft Corp. (MSFT) gained 2.7%, underpinning the Dow's rise.

Shares of H&R Block Inc. (HRB) jumped more than 7% after the company announced a new $3.5 billion stock repurchase program.

Dollar Tree Inc.(DLTR) shares fell 3.5%, adding to a 8.7% loss on Tuesday when the discount retailer announced it swung into a loss during the latest quarter.

After Tuesday's closing bell, AT&T Inc.(T) said TRC Capital Corp. has made an unsolicited "mini-tender" offer (http://www.marketwatch.com/story/att-recommends-shareholders-reject-trc-capitals-3-million-share-mini-tender-offer-2015-09-01) to buy up to 3 million of the telecom company's shares. AT&T recommended that shareholders reject the offer. Shares were up 1%.

Intel Corp.(INTC) rose 2% after the tech giant late Tuesday said it is overhauling its flagship line of computer chips (http://www.wsj.com/articles/intel-overhauls-chips-in-bid-to-revive-pc-sales-1441155601).

Other markets: October WTI crude recovered to add 0.5% to $45.62 a barrel on the New York Mercantile Exchange. Gold inched lower, while the ICE dollar index rose 0.4% to 95.82.

Sara Sjolin contributed to this article.

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(END) Dow Jones Newswires

September 02, 2015 14:58 ET (18:58 GMT)

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