US stocks rally as Fed signals no rate hike soon

U.S. stocks jumped on Wednesday, bouncing back from the prior day's sharp fall, after minutes from the Federal Reserve's last meeting had central bankers discussing ways to normalize interest rates.

"The conversation is clearly shifting from this unprecedented accommodation to policy firming. For equity markets, this is a positive signal, because the economic momentum is more upbeat, but at the same time tightening is not imminent," said Anastasia Amoroso, a Houston-based global market strategist at J.P. Morgan Funds.

Read MoreFed minutes: discussion does not signal action soon

The central bank last month trimmed its monthly asset buying to $45 billion, its fourth consecutive $10 billion reduction. Fed officials also said the economy was picking up steam and the labor market improving.

Tiffany climbed after the high-end jeweler posted quarterly profit that topped expectations; Netflix gained after saying it would broaden its online-video offerings in Europe. Target gained after the discount retailer reported a 0.3 percent decline in U.S. same-store sales, better than the 1.1 percent drop expected by analysts polled by Consensus Metrix. Lorillard rallied after Reuters reported Reynolds American was in advanced talks to acquire the cigarette company.

Also rebounding after its recent battering, the Russell 2000 climbed 0.6 percent, but the gauge of small companies still remained roughly 9 percent from its all-time high.

"I'm actually somewhat gratified to see the Russell 2000 get hammered; it's so expensive, and I don't like to see that amount of speculation going on in the market, so I would like to see it cool off. A 10 to 15 percent correction sets it on a more stable glide path," said Jack Ablin, chief investment officer at BMO Private Bank.

Benchmark indices spiked to session highs in the immediate aftermath of the Fed release.

The Dow Jones Industrial Average leaped as much as 170 points, and ended up 158.75 points, or 1 percent, to 16,533.06, with Goldman Sachs Group leading gains that included 28 of its 30 components.

The added 15.20 points, or 0.8 percent, to 1,888.03, with consumer discretionary and energy pacing gains in a broad market surge that included all of its 10 major industry groups.

The Nasdaq climbed 34.65 points, or 0.9 percent, to 4,131.54.

For every stock on the decline, nearly two rose on the new York Stock Exchange, where nearly 587 million shares traded. Composite volume approached 2.8 billion.

The Chicago Board Options Exchange Volatility Index, a measure of investor uncertainty known as the VIX, fell 7.5 percent. It earlier declined to its lowest level since Dec. 26.

The dollar held steady against the currencies of major U.S. trading partners, while dollar denominated commodities were mixed, with crude futures rising $1.74, or 1.7 percent, to $104.07 a barrel, a one-month high, and gold futures losing $6.50, or 0.5 percent, to $1,288.10 an ounce.

The 10-year Treasury yield used in determining mortgage rates and other consumer loans rose 2 basis points to 2.535 percent.

"I'm in the consensus camp that's been wrong, as I think yields are going to go up. The value for the 10-year should be 3.7 percent, not 2.5 percent," said Ablin at BMO Private Bank of the benchmark yield's recent downward trend.

The 10-year yield has been "on a declining path that is likely not sustainable, especially as economic momentum picks up," said Amoroso at J.P. Morgan Funds.

Lower interest rates pushed mortgage applications to refinance higher by 4 percent last week from the week before, but failed to bring potential home buyers into the market, according to data released by the Mortgage Bankers Association.

Lower rates don't boost mortgage applications

On Tuesday, stocks dropped after a Fed official said rate hikes could come sooner than expected and Staples and other retailers offered disappointing quarterly results.

Read MoreStocks decline for first day in three as retailers disappoint

—By CNBC's Kate Gibson

Coming Up This Week:

THURSDAY: Jobless claims, Chicago Fed nat'l activity index, PMI mfg index flash, existing home sales, leading indicators, Kansas City Fed mfg index, Fed's Williams speaks, Facebook annual mtg, Intel shareholder mtg; Earnings from Best Buy, Dollar Tree, Hewlett-Packard, Gap, Marvel Tech, Ross Stores, Aeropostale, Gamestop, TiVo

FRIDAY: New home sales; Earnings from Foot Locker

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