NEW YORK (CNN/Money) - Stocks gained Tuesday, on a late session buying wave after the Fed boosted interest rates as expected, and offered a slightly more upbeat take on the economy.

The Nasdaq composite (up 13.11 to 1,921.18, Charts) and the Standard & Poor's 500 (up 7.10 to 1,129.30, Charts) index both rose more than 0.6 percent.

The Dow Jones industrial average (up 40.04 to 10,244.93, Charts) rose about 0.4 percent.

The indexes edged up after the Fed's announcement, retreated for about half an hour, then began rallying anew.

“I think the late rally just had to do with investors, mutual fund managers mostly, wanting to sit on the sidelines and wait until the dust settled on the Fed announcement before putting their money to work for the day,” said Jeff Kleintop, chief investment strategist for PNC Advisors.

“I think the same is true for the reaction in the bond market,” he added. “I think generally what we saw after the announcement was just a supply and demand reaction, rather than a reaction to the Fed,” he added.

The central bank opted to boost the fed funds rate, a key overnight bank lending rate, by a quarter-percentage point to 1.75 percent, as had been expected.

Once again, the Fed reiterated that it will raise interest rates at a modest pace, but is willing to move faster or slower as the economy demands.

"They are basically saying what every Fed official who has opened his mouth in the last month has said," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. "The Fed is going to continue to nudge short-term interest rates, unless something disastrous happens."

The Fed’s assessment of the economy was more upbeat than after the August policy meeting, but less upbeat than after the June meeting.

“After moderating earlier this year partly in response to the substantial rise in energy prices, output growth appears to have regained some traction, and labor market conditions have improved modestly,” the Fed statement read. “Despite the rise in energy prices, inflation and inflation expectations have eased in recent months.”

While this assessment was comforting to some investors, others are concerned that raising short-term rates now and through the end of the year could threaten any “traction” the economy may have regained after a tough early summer.

After the close of trade Monday, Priceline.com (PCLN: Research, Estimates) boosted its fourth-quarter earnings per share forecast, saying it expects to earn between 14 cents and 18 cents per share, up from its earlier guidance of 13 cents to 17 cents per share.

The online discount travel site also said it was buying Active Hotels, a U.K.-based online hotel reservation site.

Earnings reports are due Wednesday from Morgan Stanley (MWD: Research, Estimates), Bear Stearns (BSC: Research, Estimates) and FedEx (FDX: Research, Estimates).

There are no economic reports expected Wednesday. Reports are due later in the week on leading economic indicators, durable goods orders, and existing home sales.

Treasury bond prices turned higher following the statement, having been lower up until its release.

The 10-year note yield fell to 4.04 percent from 4.07 percent right before the announcement. The yield stood at 4.05 percent late Monday. Bond prices and yields move in opposite directions.

Treasury prices have jumped over the last two months, pushing yields lower as investors who were previously worried the Fed was behind in fighting a possible pickup in inflation breathed a sigh of relief.

“The bond market has been saying that clearly the economy is not growing that fast, and that rates can rise at a ‘measured’ pace,” Shapiro added.

In currency trading, the dollar rose briefly after the Fed news, then returned to where it had been. The greenback spent most of the day sharply lower versus the euro and barely higher versus the yen.

The stock advance was pretty broad-based, with 22 out of 30 Dow issues advancing.

Upbeat earnings from a pair of brokerages and a surprise rise in housing starts in August added to the bullish tone.

Goldman Sachs (GS: up $3.22 to $94.90, Research, Estimates) and Lehman Brothers (LEH: up $3.73 to $79.75, Research, Estimates) both posted third-quarter earnings that were higher than expected. Goldman's earnings grew from a year earlier, while Lehman's fell. Stocks of both companies rose.

In other earnings news, Adobe Systems (ADBE: up $2.50 to $50.45, Research, Estimates) reported earnings of 43 cents per share after the close Monday. That was more than expected and up from a year earlier.

Also adding support: the morning release of the August home building report. Housing starts rose to a 2 million unit annual rate from an upwardly revised 1.988 million unit rate in July. Economists expected starts to fall.

However, building permits fell to a 1.952 million unit annual rate in August, down from a 2.066 million unit rate in July and a steeper fall than what analysts surveyed by Briefing.com were expecting.

Not all the corporate news was so rosy: Handheld computer maker PalmOne (PLMO: down $5.68 to $31.60, Research, Estimates) warned that second-quarter earnings would miss expectations. That overshadowed the company's improved quarterly results, sending shares more than 15 percent lower.

Red Hat (RHAT: down $1.87 to $13.23, Research, Estimates) tumbled 12.4 percent in active Nasdaq trade after warning that fiscal third-quarter revenue would miss expectations. The Linux software distributor also reported mixed fiscal second-quarter results -- higher revenue that beat estimates and earnings per share that missed estimates.

Following the news, UBS and Credit Suisse Boston both downgraded the stock.

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Market breadth was positive. On the New York Stock Exchange, advancers topped decliners eleven to five on volume of 1.31 billion shares. On the Nasdaq, winners beat losers by close to two to one on volume of 1.51 billion shares.

In addition, Dow component AIG received notice from the staff of the Securities and Exchange Commission that it may recommend action against the insurer for alleged violations of federal security laws. AIG (AIG: down $0.30 to $70.94, Research, Estimates) shares fell more than 1 percent.

Oil prices continued their climb. U.S. light crude for October delivery rose 75 cents to settle at $47.10 a barrel on the New York Mercantile Exchange.

In global trade, Asian-Pacific markets closed mixed, and European stocks closed with solid gains.