U.S. stocks had their biggest gains in two months after Federal Reserve policymakers said economic growth is poised to accelerate and reiterated a plan to raise borrowing costs at a "measured" pace to contain inflation.
"The Fed statement basically solidifies their confidence in the economy," said Seth Tobias, who runs Circle T Partners, a $400 million New York hedge fund. "They think this soft patch will be brief, and they'll continue to be diligent in weighing inflation against growth. And the stock market ought to take a positive cue from that."
The Standard & Poor's 500-stock index, which reached a low for the year on Friday, rose 13.82, or 1.3 percent, to 1079.04. Financial stocks including Citigroup and J.P. Morgan Chase and technology shares such as Yahoo led the gain.
The Dow Jones industrial average surged 130.01, or 1.3 percent, to 9944.67. The Nasdaq composite index rose 34.06, or 1.9 percent, to 1808.70 for its first gain in six days. All three benchmarks had their largest advances since June 7.
The Fed, headed by Chairman Alan Greenspan since 1987, raised the overnight bank-lending rate by a quarter percentage point, to 1.5 percent, in line with the median forecast of economists in a Bloomberg News survey.
Stocks pared gains in the first 15 minutes after the Fed announcement amid disappointment the central bank didn't drop its pledge to raise rates at a measured pace given the slowdown in the economy. The benchmarks then surged to highs for the day as money managers focused on the Fed's view that economy growth is about to pick up again.
Lower-than-expected job creation, a surge in oil prices and disappointing sales from retailers last week raised concern the economy had slowed more than forecast.
An index of diversified financial companies in the S&P 500 climbed 1.9 percent and accounted for more than 10 percent of the benchmark's gain. Citigroup, the world's biggest financial services company, rose 71 cents, to $44.18. J.P. Morgan Chase, the No. 2 U.S. bank, gained 92 cents, to $36.99.
Software and technology services stocks also rallied. Yahoo gained $1.45, to $27.15. Veritas Software climbed 87 cents, to $18.67.
Better-than-expected profits boosted Hospira, a maker of hospital products, and May Department Stores. Hospira climbed $2.40, to $27.15. The 9.7 percent gain was the biggest in the S&P 500. May, which bought the Marshall Field's retail chain last month, rose $1, to $25.90. An S&P 500 index of 30 retailers climbed 1.8 percent, with 29 of its members advancing.
* The New York Stock Exchange composite index rose 67.56, to 6295.11; the American Stock Exchange index rose 0.23, to 1218.17; and the Russell 2000 index of smaller-company stocks rose 11.45, to 529.83.
* Advancing issues outnumbered declining ones by 11 to 4 on the NYSE, where trading volume rose to 1.24 billion shares, from 1.08 billion on Monday. On the Nasdaq Stock Market, advancers outnumbered decliners by 27 to 1 and volume totaled 1.44 billion, up from 1.25 billion.
* The price of the Treasury's 10-year note fell $2.50 per $1,000 invested, and its yield rose to 4.29 percent, from 4.26 percent on Monday.
* The dollar rose against the Japanese yen and the euro. In late New York trading, a dollar bought 111.42 yen, up from 110.54 late Monday, and a euro bought $1.2231, down from $1.2275.
* Light, sweet crude oil for September delivery settled at $44.52, down 32 cents, on the New York Mercantile Exchange.
* Gold for current delivery fell to $400.00 a troy ounce, from $400.70 on Monday, on the New York Mercantile Exchange's Commodity Exchange.