Lower crude prices on the back of intensified diplomatic efforts between Israel and Lebanon also helped lift sentiment.

S&P 500 futures rose 5.50 points at 1,250.20 and Nasdaq 100 futures improved 6.75 points at 1,468.00. Dow industrials futures rose 49 points to 10,955.

On Friday, a profit warning from Dell Inc. and concerns over a slowing U.S. economy brought the Nasdaq down 19 points to its worst close since May 2005. The Dow industrials fell 59.7 points and the S&P 500 dropped 8.8 points. See Market Snapshot.

Dell on Monday received an upgrade from Citigroup to buy, with the broker saying it expects the computer maker to raise prices in the third quarter.

Crude oil futures fell 57 cents to $73.86 a barrel. The arrival of U.S. Secretary of State Condoleezza Rice in Beirut has raised hopes that a diplomatic efforts between Israel and Lebanon will succeed before violence spreads to other countries. See Futures Movers.

Gold futures also fell, with the front-month contract losing $8.20 to $612.00. The U.S. dollar strengthened against its rivals, adding 0.5% vs. the yen to 116.67 and advancing 0.6% against the euro to $1.2622.

Intel's results, however, overshadowed a slew of strong earnings reports led by Apple Computer Inc., Motorola Inc and Honeywell International Inc among others.

Strong earnings from J.P. Morgan Chase and International Business Machines also boosted sentiment, but some investors cautioned against excessive optimism, saying the Middle East conflict remained a key issue for the market.

The Dow industrials ($INDU :

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$INDU10,962.76, +163.53, +1.5%) shot up 161 points to 10,966.

The Nasdaq Composite Index ($COMPQ :

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$COMPQ2,069.97, +26.75, +1.3%) gained 28 points to 2,071 while the S&P 500 Index ($SPX :

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$SPX1,255.88, +19.02, +1.5%) was up 20 points at 1,257. See full story.

"The general conclusion from his comments was that he was more dovish than he has been," said Al Goldman, chief market strategist at AG Edwards, referring to Fed chief's Ben Bernanke's prepared testimony to Congress. The term 'dovish' suggest Bernanke will be less aggressive about raising interest rates in the future.

Goldman pointed to the Fed chief's remarks that labor units costs were being contained while measures of longer-term inflation expectations have edged lower. He added, however, that Bernanke's testimony makes no reference to the latest consumer price report that showed core retail inflation picking up. See full story.

In prepared testimony to Congress, Bernanke said inflation risks remain and the central bank is concerned about rising prices. But he said the economy is likely to slow and this should ease inflation pressures.

The Fed chief also said the full impact of past rate hikes has yet to hit the economy. His testimony fits with the rough consensus of economists who have said Bernanke will try to preserve the Fed's flexibility to either continue to raise rates or pause in August, depending on the central bank's interpretation of the latest economic data.

The Federal Reserve has raised its key short-term interest rate 17 times in a row in a bid to slow economic growth and choke off inflation. Its federal funds rate stands at 5.25%.

In spite of Wednesday's move, Goldman said, the focus remains the conflict in the Middle East.

"There isn't a real strong incentive for people to go aggressively after stocks when you have the Middle East as a tinderbox," he said.

On the broader market, advancers outpaced decliners by 6 to 1 on the New York Stock Exchange and by more than 4 to 1 on the Nasdaq.