Dow, S&P 500 have best one-day gain in 4 months

NEW YORK - An already soaring Wall Street extended its advance Tuesday after the Federal Reserve left interest rates unchanged and assuaged some of the market's fears about the economy. The Dow Jones industrial average shot up more than 330 points, and all the major indexes had gains approaching 3 percent.

The market was enjoying a big rally before the Fed meeting as investors responded to a report that services-sector activity fell less than expected last month and to another drop in oil prices that took crude as low as $118 a barrel.

The Fed gave stocks another huge push higher in the last hours of trading. In a statement accompanying its widely expected rate decision, the central bank reported that "economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports." That assessment was welcome news to a market that has feared the economy was falling into recession because of weak consumer spending.

The Fed did have some darker news, stating that "inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities." But it also said it expected inflation to moderate later in the year.

The oil market also helped soothe some of Wall Street's worries -- crude fell as low as $118 a barrel before settling at $119.17, down $2.24 on the New York Mercantile Exchange. Oil now has fallen $28 from its July 11 high of $147.27 on widening expectations that the slumping U.S. economy will keep limiting consumer demand for gasoline and other petroleum products.

Stocks had plunged in June and early July as oil reached new heights; the fear on Wall Street was that higher prices for fuel would curtail consumer spending, which accounts for more than two-thirds of the economy. With oil falling, and the Fed citing economic growth in its statement Tuesday, investors were allowing themselves to again feel a little more optimistic after a year of financial crises and soaring commodities costs that have pummeled stocks.

The Dow rose 331.62, or 2.94 percent, to 11,615.77. It was up about 225 points shortly before the Fed's announcement. Broader indexes also rose sharply. The Standard & Poor's 500 index added 35.87, or 2.87 percent, to 1,284.88, and the Nasdaq composite index rose 64.27, or 2.81 percent, to 2,349.83.

It was the Dow and S&P 500's biggest one-day gain since April 1, when the indexes kicked off the second quarter with a huge rally.