NEW YORK (CNN/Money) - Stocks rallied to a higher close Tuesday as the Fed's decision to keep the fed funds rate at its 45-year low gave some strength to buyers in the last hour of the session.

The Dow Jones industrial average (up 92.71 to 9310.06, Charts) and the Standard & Poor's 500 index (up 9.76 to 990.35, Charts) each rose 1 percent, while the Nasdaq composite (up 25.50 to 1687.01, Charts) scored a gain of 1.5 percent.

"The Fed decision was basically right on top of expectations," said Brett Gallagher, head of U.S. equities at Julius Baer. "Even the tone of their comments was balanced, as it should be. I don't think there were any surprises."

The Fed left the fed funds rate at 1 percent, as most economists had expected, and the news had little initial effect on stock markets. But after digesting the Fed's statement, investors found some comfort and bought stocks in the last hour of the session.

In trading Wednesday, investors likely will consider better-than-expected earnings and lowered guidance from Applied Materials (AMAT: Research, Estimates), released after the close Tuesday. Retailers Wal-Mart (WMT: Research, Estimates), Ann Taylor (ANN: Research, Estimates) and Federated Department Stores (FD: Research, Estimates) are also set to post fiscal results Wednesday.

Meanwhile, reports on business inventories and retail sales, due ahead of the opening bell, could influence trading.

Economists, on average, expect that business inventories slipped 0.1 percent in June after a decline of 0.2 percent in May, according to a survey by Briefing.com.

Retail sales are forecast to have risen 1 percent in July from a gain of 0.5 percent in June, according to a consensus of analysts surveyed by Briefing.com.

The Fed's comments on the economy were the focus of trading Tuesday.

In its statement, the central bank said it is still worried about an "unwelcome" drop in inflation. Bonds saw a brief jump in prices as concerns of deflation crept back into the market. Treasury prices shifted higher after the Fed decision, but dropped back again shortly after, with the 10-year note yielding 4.40 percent.

The Fed has indicated it has no intention of raising rates until the economy is well into a recovery cycle, but recent signs that growth is perking up have led to speculation that the first rate hike may come sooner than had been expected. (For more on the Fed and interest rates, click here.)

Traders said that as economic reports begin to show more solid growth in the economy, the Fed will act as less of a catalyst. "I can't see that the Fed's going to have much to do with the market going forward," said Angel Mata, head of equity trading at Legg Mason.

Although the earnings season is very nearly over, investors turned some attention to the quarterly report of chip equipment maker Applied Materials (AMAT: up $0.11 to $18.45, Research, Estimates), which came after the closing bell Tuesday. The company posted earnings of 5 cents a share in the fiscal third quarter, excluding charges, down from 7 cents in the same period last year but beating Wall Street expectations by a penny a share.

The company said new orders for the quarter were $1.05 billion, better than the $971 million it told Wall Street in May that it was expecting and up from the fiscal second quarter. Analysts had been anticipating the order number, hoping for signs of strength in the market -- and in business spending, a key step on the way to economic recovery.

But the company also warned that it expects fiscal fourth-quarter earnings and revenue to come in shy of Wall Street expectations, which pushed the chip equipment maker's shares 2 percent lower in after-hours trading.

Stocks have floundered for over a month after rallying from their March 11 lows -- inspired by investors' hopes for an economic recovery in the second half of the year. Traders also said they were eager for the latest readings on producer prices, consumer prices, jobless claims and consumer sentiment, all due near the end of the week.

Meanwhile, a few retailers managed to generate interest in their stocks after delivering their latest results Tuesday.

J.C. Penney (JCP: Research, Estimates) dropped 1.7 percent despite posting a narrower loss than expected by analysts. But Costco (COST: up $0.60 to $30.05, Research, Estimates) climbed 2 percent after Legg Mason upgraded the stock to "buy" from "hold."

Financial issues helped buoy the Dow. American Express (AXP: up $0.82 to $44.90, Research, Estimates) rose 1.9 percent, J.P. Morgan (JPM: up $0.42 to $33.64, Research, Estimates) jumped 1.3 percent and Citigroup (C: up $0.64 to $45.19, Research, Estimates) bounced 1.4 percent.

PC maker Hewlett Packard (HPQ: up $0.99 to $20.95, Research, Estimates) also was among leaders on the Dow, rising 5 percent, following positive comments on the company's fourth-quarter outlook from SG Cowen.

Market breadth was positive on light volume. On the New York Stock Exchange, where 1.1 billion shares changed hands, advancers outnumbered decliners by more than two to one. On the Nasdaq, winning stocks also beat out losers more than two to one as 1.3 billion shares traded.

European markets closed higher Tuesday. Asian stocks mostly made gains.

The dollar was rose against the yen and the euro.

NYMEX light sweet crude oil futures fell 9 cents to $31.92 a barrel. COMEX gold fell $3.30 to $360 an ounce.