Stocks ended higher and the Dow closed at a new record after the Federal Reserve voted to keep interest rates unchanged.
"You're seeing a lot of money that was put on the sidelines earlier in the day … that money was safe to come into the market," said Jeff Kleintop, chief market strategist at LPL Financial Services. "If you take a look at the last six statements, a half hour after it was released the market bounced."
The Fed said economic growth slowed in the first part of the year as the housing industry's slump continues to play out. "Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters," it said.
The Fed also reiterated its stance that inflation remains the predominant policy concern.
"I think it's pretty much a neutral statement as it relates to the equities market," said Robert Doll, chief investment officer at BlackRock.
Although the initial reaction was negative, the Dow Jones Industrial Average quickly recovered from a 50-point loss to move higher. The S&P 500 and the Nasdaq also reversed earlier losses to close at six and a half year highs.
"Judging by the dip we took, the initial reaction shows that people were anticipating the Fed to change to focusing on (GDP) growth rather than inflation," said Rick Pendergraft, chief investment analyst at Investor's Daily Edge, an investment newsletter. "Nobody expected them to change but some people were caught off guard by the fact that they remained focused on inflation."
Gains were broad with all 10 economic sectors tracked by S&P 500 closing higher. Telecom was the biggest daily gainer while financial stocks such as JP Morgan Chase were also strong.
"Generally, the market is still upbeat about the overall strength of the equity markets," said Michael Sheldon, chief market strategist for Spencer Clarke.
The tech sector was one of the day's biggest laggards, weighed down by Cisco Systems , which reported solid third-quarter earnings but disappointed investors with fourth-quarter guidance.
A rise in shares of Texas Instruments helped technology stocks pare some of the day's losses after the semiconductor company raised its profit margin outlook.
Walt Disney said quarterly earnings rose 27%, above second-quarter analysts' forecasts, citing strong results from its film studio and solid advertising sales. However, sales at the company's entertainment division fell short of some analysts' expectations.
Shares of IBM rose after Goldman Sachs upped its rating to buy from neutral, saying the technology giant's buyback plans will bolster earnings over the next two years.
Toll Brothers reported its preliminary second-quarter sales fell from the same quarter last year, due to continued weakness in the U.S. housing sector, and the company also said it will not meet its previous sales and earnings guidance.
Shares of Dendreon plunged nearly 60% after U.S. regulators demanded more data on the effectiveness of an experimental cancer vaccine, delaying its expected launch. The drop comes just over a month after the stock of the biotech company more than doubled in a single session when an FDA advisory panel recommended approval of the prostate cancer treatment, Provenge.
In the energy market, New York light sweet crude futures fell 1.1% after an unexpected build in crude oil inventories. Crude oil has closed down in seven of the last eight sessions.
Europe Finishes Mostly Higher, Asia Mixed
European stocks finished mostly higher, driven by gains in the mining sector. Stocks in London closed flat, but the major indexes in Paris and Frankfurt closed higher.
Shares of leading mining company Rio Tinto soared about 11% to a record high in Australian trading, following speculation the company may be subject to a $100 billion takeover bid from rival miner BHP Billiton . Rio Tinto said it wasn't aware of the approach.
Paris-listed bank BNP Paribas reported a 24.5% rise in its first-quarter net profit, boosted by earnings growth in its investment banking and asset management units. The results topped expectations, sending shares higher.
In Germany, Commerzbank posted a drop in first-quarter earnings, but said it will likely surpass 2007 earnings goals. The bank previously warned that earnings would be weaker.
The Nikkei 225 Average edged higher despite declines in Softbank after a brokerage cut the bank's ratings. But the benchmark index was supported by resources shares such as metals. Sumitomo Metal Mining was among the resource shares making gains on hopes for solid business outlooks.
South Korea's Kospi Index was slightly higher as retailers such as Lotte Shopping gained on hopes for a recovery in domestic demand, but Hyundai Heavy Industries dropped after a large shareholder sold part of its stake.
The Shanghai Composite Index rose above the key 4,000 level for the first time, despite investors being increasingly worried about a possible stock market bubble. The market has more than doubled last year and has risen another 47% so far this year.