U.S. stock gains eased on Wednesday and risk aversion rose, driving bond prices higher, after minutes from the Federal Reserve's last meeting showed policy-makers worried about a steep drop in economic activity.

Oil settled slightly up on the day -- above $49 a barrel -- but off earlier highs and the dollar firmed against the euro following the release of minutes from the Fed policy-makers' meeting on March 17-18.

The gloomier outlook dampened investors' enthusiasm over reports that U.S. life insurers may get more government help and that Japan was finalizing an even bigger spending package.

The Fed's weakened outlook, which foresaw the prospect of an even grimmer employment picture than previously expected, helped lift government debt and to a lesser extent the dollar.

The assessment of the economy is very bad. This is clearly a big problem that they are worried about, Robert Brusca, chief economist at Fact and Opinion Economics in New York.

The most discouraging thing is the wording they used to describe the domestic and overseas economies, which is very bad. I don't see any language here resembling the 'green shoots' used by Bernanke, Brusca said.

The tech-rich Nasdaq rose almost 2 percent as investors bet that such bellwethers as Microsoft (MSFT.O: Quote, Profile, Research) may be among the first sectors to see a recovery in demand.

Consumer shares also underpinned solid gains in the S&P 500 on hopes of a recovery in spending. Shares of Bed Bath & Beyond BBBY.N jumped 23 percent to $31.37, pushing retail stocks higher as sales were not as bad as feared.

The mood is improving that maybe the economy will come back some time and both consumer discretionary and tech are cyclical, said Al Goldman, chief market strategist at Wachovia Securities in St. Louis.

Shares of companies including Prudential Financial (PRU.N: Quote, Profile, Research), which rose 6.3 percent, gained after the Treasury said life insurers, whose capital base has been eroded by falling markets, have met requirements for government funds.

Thin volume before the long Easter weekend kept risk appetite low among investors across all asset classes and boosted the safe-haven appeal of the yen, bonds and gold.

Investors were buffeted by both bullish and bearish news.

U.S. homebuilders got a boost after Pulte Homes (PHM.N: Quote, Profile, Research) said it would buy Texas-based builder Centex (CTX.N: Quote, Profile, Research) for $1.3 billion (884 million pounds) in stock against the backdrop of a troubled industry.

The Dow Jones industrial average .DJI closed up 47.55 points, or 0.61 percent, at 7,837.11. The Standard & Poor's 500 Index .SPX rose 9.61 points, or 1.18 percent, at 825.16. The Nasdaq Composite Index .IXIC gained 29.05 points, or 1.86 percent, at 1,590.66.

In Europe, miners advanced with a rise in key base metals prices, while financials recouped some of their recent losses.

The FTSEurofirst 300 .FTEU3 index of top European shares closed 0.3 percent higher at 762.58 points. The benchmark is down 8 percent this year after plunging 45 percent in 2008.

Concerns about corporate earnings and weak trade data continued to dampen enthusiasm for higher-risk assets, increasing the allure of lower-risk fixed income paper.

Japanese electronics maker Sharp doubled its loss estimate for the year just ended, while German carmaker Daimler forecast a considerable drop in revenue this year.

Trade data from Germany, France and Japan also showed a further weakening in global commerce as recession takes hold.

Longer-term government debt extended gains after the Fed minutes.

The benchmark 10-year U.S. Treasury note rose 14/32 in price to yield 2.85 percent. The 2-year U.S. Treasury note fell 1/32 to yield 0.93 percent.

Currencies were largely being driven by market risk sentiment and equity markets.

The dollar fell against the yen as concerns about U.S. corporate earnings kept risk appetite low.

The dollar was up against a basket of major currencies, with the U.S. Dollar Index .DXY up 0.02 percent at 85.231.

The euro fell 0.07 percent at $1.3258 from a previous session close of $1.3267. Against the yen, the dollar fell 0.80 percent at 99.70.

It seems that risk aversion has returned to the market after the short period of exuberance following the G20 meeting, said Ronald Simpson, managing director of global currency analysis at Action Economics in Tampa, Florida.

Oil rose after the Energy Information Agency said inventories of crude rose 1.7 million barrels to 361.1 million barrels in the week ended April 3. Analysts had forecast a build of 1.9 million barrels.

U.S. light crude for May delivery settled at $49.38 a barrel up 23 cents, but down from a high of $51.30 earlier in the session. London Brent crude settled at $51.59, up 37 cents.

However, energy came off highs after stocks eased following the Fed minutes, said Stephen Schork, editor of the Schork Report in Philadelphia.

Spot gold prices fell 75 cents, or 0.09 percent, to $879.30.

(Reporting by Wanfeng Zhou, Burton Frierson and Robert Gibbons in New York, and Kirsten Donovan, Atul Prakash, Jan Harvey and Chris Baldwin in London; Writing by Herbert Lash; Editing by Chizu Nomiyama)