The Dow Jones Industrial Average was up 42 points at 11,166. The S&P 500 was up 6 at 1,276 and the Nasdaq Composite up 11 points at 2,073.

From now until the Fed's August 8 monetary policy decision investors will be preoccupied with a confusing interest rate outlook. Fed officials have sent mixed signals as to whether the central bank is set to pause after increasing the overnight rate by a quarter-point 17 times in a row since June, 2004.

In addition, recent data reports have depicted both economic slowing, which would support a case for ending rates increases, and growth, which would suggest the Fed needs to keep hiking to cool the economy.

Merrill Lynch called the current confusion "a first for this cycle," pointing out that fed funds futures are pointing to a 36% chance of a rate hike next week.

"Generally, the Fed has jawboned the market so much that by now, the market was more than 80% prepared for what turned out to be a 25 beeper," the research said.

The last time the Fed tightened with futures pricing in such low odds for a move was Jan., 1994. "And this is not a Fed, unlike 1994, intent on surprising the markets."

Continuing violence in the Middle East is also keeping investors jumpy. On Wednesday Israel expanded ground attacks and staged new helicopter attacks on Lebanon in a bid to immobilize Hezbollah before any cease-fire is reached.