Stocks party post-Fed

NEW YORK (CNNMoney.com) -- Stocks rallied Wednesday afternoon after the Federal Reserve held interest rates steady, as expected, and downplayed the impact of the fallout in the subprime lending market by not acknowledging it.

The Dow Jones industrial average (up 78.99 to 12,367.09, Charts), the Nasdaq (up 22.65 to 2,430.86, Charts) composite and the broader S&P 500 (up 14.65 to 1,425.59, Charts) index all posted solid gains shortly after the Fed statement came out at about 2:15 p.m. ET.

Fed policy-makers concluded their two-day policy meeting by keeping the fed fund rate, a key overnight bank lending rate, unchanged at 5.25 percent for the sixth meeting in a row.

In the closely watched statement, the central bankers continued to portray the economy as slowing at a moderate pace, but not heading for recession. The Fed also continued to warn that the threat of higher inflation was greater to its outlook going forward than the threat of slower growth.

The central bankers surprised some investors by not referring to the recent fallout in the subprime mortgage lender market, only noting that "the adjustment in the housing sector is ongoing."

Treasury prices also rallied after the announcement, lowering the yield on the 10-year note to about 4.53 percent from 4.54 percent late Tuesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar turned lower, giving up earlier gains versus the euro and the yen.