Dow up 169 as Fed leaves rates alone

The central bank says it will continue pumping money into the economy. Investors cheer a hint in today's GDP report that consumers are still spending. Bank of America chief Ken Lewis keeps his job but is no longer chairman. Starbucks earnings beat estimates.

By Charley Blaine and Elizabeth Strott

Don't expect interest rates to rise anytime soon, the Federal Reserve said today. The economy is so weak that there are no inflationary pressures to worry about yet.

So, the central bank decided to leave interest rates at record low levels. The decision -- and a hint that consumers may be starting to spend again -- was expected and cheered by investors, who pushed stocks to their highest levels since January.

The Dow Jones industrials ($INDU) closed up 169 points, or 2.1%, to 8,185.73. The Standard & Poor's 500 Index ($INX) was up 18 points, or 2.2%, to 873.64.

The Nasdaq Composite Index ($COMPX) was up 38 points, or 2.3%, to 1,711.94, and the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, jumped 20 points, or 1.5%, to 1,382.38.

The rally broke a two-day losing streak for the major averages. It produced the best close for the Dow since Jan. 29 and since Jan. 28 for the S&P 500. The Nasdaq saw its first close above 1,700 since Nov. 4. The Dow had been up as many as 241 points before profit-taking set in.

Futures trading suggests the U.S. stock market will open modestly higher on Thursday.

The Fed left its key federal funds rate, the rate banks charge each other for overnight loans, at 0% to 0.25%. The discount rate -- what the Fed charges financial institutions for short-term loans -- was left at 0.5%.

Because of the economy's fragile state, the Fed said it will continue to leave interest rates at record low levels to try to get the economy moving. Moreover, the Fed's statement said the central bank will continue to buy government and government-related securities to give the economy the fuel to start a recovery.

The Fed expects to continue its plan to spend $1.75 trillion buying mortgage-backed securities and related debt and $300 billion in Treasury securities later this year.

About the only good economic news in the statement was the Fed's note that "the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit.