Updated from 4:12 p.m. EST

Stocks shrugged off a slow start and surged Wednesday after the statement accompanying the Federal Reserve's first meeting of the year offered a relatively benign view of the economy.

The Dow Jones Industrial Average gained 98.38 points, or 0.79%, to 12,621.69 -- less than a point below a record close. The S&P 500 added 9.42 points, or 0.66%, to 1438.24, and the Nasdaq Composite was higher by 15.29 points, or 0.62%, at 2463.93.

The late rally helped the major indices finish the month of January with strong gains. The Dow was higher by 158 points, or 1.3%, its seventh straight monthly rise. The S&P 500 gained 20 points, or 1.4%, its eighth straight winning month. The Nasdaq finished the month with an increase of 49 points, or 2%.

Roughly 2.95 billion shares changed hands on the New York Stock Exchange. Advancers beat decliners by a 2-to-1 margin. Volume on the Nasdaq reached nearly 2.24 billion shares, with winners narrowly outpacing losers.

The major averages moved out of their earlier doldrums after the Federal Open Market Committee decided to keep its federal funds target unchanged at 5.25% for the fifth straight meeting, an outcome that had been widely expected on Wall Street.

The FOMC said in its policy statement that recent indicators showed "somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market."

Looking forward, the Fed said the economy seems likely to expand at a moderate pace over coming quarters.

The Fed also said that readings on core inflation "have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures," the statement said.

The FOMC reiterated its views on the possibility of further hikes, saying that "the extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

"The market had expectations of the text of the statement to be much more hawkish," said Jay Suskind, head of institutional equity trading with Ryan Beck & Co. "Today's statement and the economic numbers over the last few days has put a Goldilocks economy out there again. If we stay stable and continue to see growth, we should see the market react positively."

Treasuries were higher after the statement. The 10-year note rose 11/32 in price to yield 4.83%, and the 30-year bond was higher by 27/32 to yield 4.92%.

The Fed release followed fresh government data that showed the U.S. economy grew at a stronger-than-expected rate during the fourth quarter. The Commerce Department said gross domestic product rose 3.5% last quarter, up from a 2% annual pace in the third quarter. Economists had estimated the economy grew at a 3% rate.

The year-over-year change in inflation eased to 2.1% from 2.2% in the third quarter, but still remained a bit outside the Fed's comfort zone.

The GDP report is the first of three that will ultimately be released on the fourth quarter.

Meanwhile, the Chicago purchasing managers' index dropped to a reading of 48.8, below the consensus 52.0 and the lowest reading since April 2003. Though the Chicago PMI specifically discusses manufacturing activity in the Midwest, it's closely watched for clues about the overall stability of the nation's factory sector.

Another report from the Commerce Department said that construction spending fell 0.4% in December, whereas no change had been anticipated.

Elsewhere, crude prices continued Tuesday's big rally, despite a bearish inventory report from the Energy Department. Oil futures rose $1.17 to close at $58.14 a barrel.

The latest inventory report from the Energy Department showed that crude stores increased by 2.7 million barrels last week, distillate supplies rose by 2.6 barrels, and gasoline stocks climbed by 3.8 million barrels.

On the corporate side, Bristol-Myers Squibb ( BMY) has hired investment bankers, a possible signal that it is in fact exploring a merger, according to a published report. The Financial Times had the news, following its own article earlier this week that the company was mulling a deal with Sanofi-Aventis ( SNY).

Bristol-Myers finished with a gain of 2.7% at $28.79. Sanofi-Aventis shed 0.8% to $44.08.

Altria ( MO), the New York-based maker of Marlboro cigarettes, said it will spin off its 89% stake in Kraft ( KFT). The company will distribute 0.7 Kraft shares for every Altria share March 30. Altria slipped 0.2%, while Kraft was 0.3% higher for the session.

Elsewhere, Time Warner ( TWX) said its fourth-quarter earnings rose 34% to $1.75 billion, while sales climbed 8.2% year over year to $12.5 billion. Time Warner slid by 17 cents, or 0.8%, to $21.87.

Fellow Dow component Boeing ( BA) posted adjusted fourth-quarter earnings of $1.16 a share on revenue of $17.54 billion, exceeding Wall Street's expectations. Shares rallied $3.56, or 4.1%, to close at $89.56.

At Eli Lilly ( LLY), sales for the fourth quarter increased 9% to $4.25 billion, but earnings slumped to $132.3 million from $700.6 million a year earlier. Excluding charges, the drugmaker's profits would have been $929.6 million, up 7%. On a per-share basis, adjusted earnings were 85 cents. Lilly finished higher by $1.45, or 2.8%, to $54.18.

Eastman Kodak ( EK) swung to a fourth-quarter profit of $16 million, or 6 cents a share, from a year-earlier loss of $46 million, or 16 cents a share. Excluding items, the company earned 59 cents a share, beating analysts' consensus estimate, even as revenue slipped 9% and missed targets. The stock added 34 cents, or 1.3%, to close at $25.86.

Equities were mostly lower overseas. London's FTSE lost 0.6% to 6203, while Frankfurt's Xetra DAX was tacked on 0.1% at 6789. Tokyo's Nikkei sank 0.6% overnight to 17,383, and Hong Kong's Hang Seng dropped 1.7% to 20,106.

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