Strong growth. Moderate inflation. And the Federal Reserve's apparent acknowledgement of a stellar economic picture. It all combined to send stocks soaring on Wednesday. The Dow Jones industrials climbed nearly 100 points to set another trading high, while the Russell 2000 index had its first close above 800.

The Dow rose 98.38, or 0.79 percent, to 12,621.69. The Dow came with a few decimal points of a week-old closing high and set a new trading high of 12,657.02. The previous trading high set Jan. 24 was 12,623.45; the Dow's record close remains 12,621.77.

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Broader stock indicators also spurted higher. The Standard & Poor's 500 index rose 9.42, or 0.66 percent, to 1,438.24 and the Nasdaq composite index gained 15.29, or 0.62 percent, to finish at 2,463.93.

The Fed, which issued its economic assessment as it decided to leave short-term interest rates unchanged at 5.25 percent, said recent indicators "suggested somewhat firmer economic growth" and tentative signs of stabilization in the housing market. Investors also appeared pleased by the central bank's comments that readings on core inflation had "improved modestly" in recent months.

Wall Street had expected the Fed's Open Market Committee would leave short-term interest rates unchanged for the fifth straight meeting after a string of 17 straight increases that began in 2004. But investors had been uneasy about the central bank's economic assessment statement and whether it would indicate that policy makers were considering raising interest rates in the near future because the economy and/or inflation has been growing too fast.

"They coupled a firmer economic growth scenario with the expectation of moderate growth and they expect the inflation outlook to be improving," John Miller, head of fund management at Nuveen Investments, said of the Fed. "I don't think it makes it any more likely that they would feel compelled to raise rates."

The Fed's comments pushed the Russell 2000 index of smaller companies above the 800 mark to a record close; it finished up 2.37, or 0.30 percent, at 800.34. Its previous high was Tuesday.

For the first month of the year, the Dow rose 1.27 percent, while the S&P gained 1.41 percent and the tech-dominated Nasdaq added 2.01 percent. Some on Wall Street are fond of noting that as the S&P 500 goes in January, so goes the year. The so-called January barometer has had only five major errors since 1950, for an accuracy rate of 91.1 percent, according to the Stock Trader's Almanac.

Bond prices rose sharply following the Fed's statement, with the yield on the benchmark 10-year Treasury note falling to 4.82 percent from 4.88 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude settled up $1.17 at $58.14 per barrel on the New York Mercantile Exchange.

"We knew the economy was producing better numbers over the past couple of months but they also acknowledged the improved outlook on inflation," Miller said. "I think the description does characterize a soft landing scenario, which appears to be unfolding."

Stocks, which had been mixed on lighter-than-normal trading ahead of the rate decision, had found some support earlier Wednesday as the economy gave off fresh signs it could sidestep a sharp slowdown. The Commerce Department found the economy, as measured by gross domestic product, grew at 3.5 percent annual rate in the fourth quarter as consumers increased spending despite a pullback in the housing market. Wall Street expected an increase of 3 percent.

"The GDP number was very good for both the stock and the bond markets because it showed better growth and less inflation," said Stuart G. Hoffman, chief economist for PNC Financial Services Group in Pittsburgh.

The Commerce Department also said spending on construction projects fell 0.4 percent in December after rising 0.01 percent in November.

In other economic news, the cost of hiring and retaining workers moderated in the fourth quarter, possibly easing some concern about wage inflation. Wages and benefits rose 0.8 percent in the fourth quarter, down from a 1 percent increase in the third quarter, the Labor Department reported.

A weaker report came from the National Association of Purchasing Management-Chicago index of business conditions in the Midwest; it fell to 48.8 in January from 51.6 in December. A reading below 50 generally signals a pullback in the region's manufacturing, and this was the first time the reading had fallen below 50 since April 2003. The Chicago number is often viewed as an indicator of how the nation's overall manufacturing sector might be holding up. That report is due Thursday.

Hoffman said the Wednesday's data illustrated a dichotomy for the economy. "Manufacturing activity is still pretty weak, particularly for autos, whereas the service economy is still quite strong."

In corporate news, Boeing Co. (BA) rose $3.56, or 4.1 percent, to $89.56, giving a boost to the Dow industrials. The aerospace company's fourth-quarter profit more than doubled amid broad strength in its commercial airplane and defense system businesses. Revenue climbed 26 percent to $17.5 billion, coming in well ahead of the $16.5 billion in revenue Wall Street forecast.

SanDisk Corp.(SNDK), which makes flash memory products, fell $2.65 , or 6.2 percent, to $40.18 after it posted a fourth-quarter loss amid big charges related to its acquisition of Israeli flash memory maker M-Systems.

Time Warner Inc. (TWX) slipped 17 cents to $21.87. The company's fourth-quarter profit jumped 34 percent, aided by the sale of Internet access businesses in Europe and an agreement that brought new subscribers to its cable TV unit.

Homebuilders rose following the Fed's comments on the housing market. Toll Brothers Inc. rose $1.40, or 4.3 percent, to $33.83, while KB Home jumped $2.55, or 4.9 percent to $54.22.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 1.72 billion shares compared with 1.53 billion Tuesday.

Overseas, Japan's Nikkei stock average closed down 0.61 percent. Britain's FTSE 100 closed down 0.62 percent, Germany's DAX index finished up 0.01 percent, and France's CAC-40 was down 0.66 percent.

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The Associated Press and Reuters contributed to this report.