NEW YORK – U.S. stocks rallied sharply Wednesday after investors viewed a statement from the Federal Reserve as signaling the central bank's next move may be a cut in interest rates.
Shares of Morgan Stanley were already trading higher earlier in the session after reporting record earnings, but the investment bank's stock piled on more gains following the Fed decision and the accompanying statement.
Other rate-sensitive financial shares jumped, including Citigroup Inc. and Bank of America Corp.
The Fed said it remained concerned about inflation but left out a reference to further "firming" of monetary policy that was contained in its previous statement.
"This brings back a rate cut into the picture, and the (stock) market is very happy about that," said Giri Cherukuri, head trader at OakBrook Investments LLC, which oversees $1.3 billion in Lisle, Illinois.
The Dow Jones industrial average ended up 159.42 points, or 1.30 percent, at 12,447.52. The Standard & Poor's 500 Index was up 24.10 points, or 1.71 percent, at 1,435.04. The Nasdaq Composite Index was up 47.71 points, or 1.98 percent, at 2,455.92.
The gains helped the S&P and the Nasdaq close positive year-to-date for the first time since a major market sell-off late last month.
The Fed voted unanimously to keep its benchmark federal funds rate at 5.25 percent while maintaining a warning on the risk of inflation.
Morgan Stanley shares ended up 6.9 percent, or $5.22, to $81.33. Citigroup stock gained 2.7 percent, or $1.39, to $52.03 and Bank of America shares rose 2.2 percent, or $1.10, to $51.86 on the New York Stock Exchange.
JPMorgan Chase & Co. was the top-weighted advancer on the Dow, adding 2.7 percent, or $1.30, to $49.05.
Adobe Systems Inc. and Oracle Corp. were among the top gainers on the Nasdaq after both software makers reported earnings that topped Wall Street estimates late on Tuesday.
Oracle shares climbed 3.5 percent, or 62 cents, to $18.17 and Adobe stock jumped 6.3 percent, or $2.56, to $43.30.
On the down side, FedEx Corp. dropped 1.2 percent, or $1.30, to $110.99 on the NYSE after the package delivery company posted a lower quarterly profit and its outlook suggested a slowing economy may weigh on future growth.
Trading was moderate on the NYSE, with about 1.63 billion shares changing hands, below last year's estimated daily average of 1.84 billion, while on Nasdaq about 2.17 billion shares traded, above last year's daily average of 2.02 billion.
Advancing stocks outnumbered declining ones by a ratio of about 9 to 2 on the NYSE and by 22 to 7 on Nasdaq.