Stocks gain post-Fed

NEW YORK (CNNMoney.com) -- Stocks rose and bond prices fell Wednesday afternoon after the Federal Reserve held a key short-term interest rate steady, as expected, and again said that inflation was its main worry going forward.

The Dow Jones industrial average (up 36.41 to 13,345.48, Charts) added 0.3 percent with less than 45 minutes left in the session. The blue-chip barometer had briefly hit a record intraday high of 13,369.05 before retreating. The broader S&P 500 index (up 4.52 to 1,512.24, Charts) added 0.3 percent, while the tech-fueled Nasdaq composite (up 3.78 to 2,575.53, Charts) was barely higher.

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The major gauges had been on both sides of unchanged throughout the session as investors weighed Cisco's earnings and lower oil prices ahead of the conclusion of the Fed meeting.

The central bank's policymakers opted to keep the fed funds rate unchanged at 5.25 percent for the seventh meeting in a row, as expected. The Fed's closely watched statement was little changed from the last meeting in March, with the bankers saying again that the main policy concern remains the risk of inflation not moderating as they expected.

Bond prices fell as investors worried the Fed might raise rates, making their holdings less attractive, while some traders had bet the Fed would acknowledge recent signs that inflation pressure had eased, said Wan-Chong Kung, senior fixed-income portfolio manager at First American Funds.

But for the stock market, the statement was perhaps less hawkish about inflation than feared, she said, and that may be why stocks were able to move higher.

The bankers acknowledged the economic slowdown more directly this time than in March, saying growth slowed in the first part of the year. But they also reiterated that the adjustment in housing is ongoing and that the economy should expand at a moderate pace over the next few quarters.

The statement was pretty backward looking in terms of growth, and not a surprise for the market, Kung said. "It seemed fair and reasonable to say, yeah, things have slowed down."

Overall, the statement seemed to "discourage any aggressive pricing of easing odds," in the short term, King added, meaning rates probably aren't going anywhere anytime soon.

Treasury prices slipped after the Fed announcement, boosting the yield on the 10-year note to 4.66 percent from 4.62 percent late Tuesday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar gained against the euro following the decision and trimmed losses against the yen.

After rising steadily the last five weeks, stocks have stalled the last two sessions, with the Dow ending its attempt to carve out the longest up streak in Wall Street history. Nonetheless, the blue-chip barometer did manage to tie an 80-year old record, rising in 24 of 27 sessions through Monday.

The advance lifted the S&P 500 to within 18 points of its all-time high from March 2000, while the Nasdaq topped out at a 6-year high.

Following such an advance, investors were hesitant Wednesday.

"After the runup, it's understandable that everyone wants to take a step back and assess what has happened and what could happen," said Russell Lundeberg Jr., chief investment officer at Barrett Capital Management.

But he said the fundamentals of the market are positive and stock valuations seem to be reasonable at home and abroad, factors that should support equities going forward.

In corporate news, two marquee companies reported quarterly earnings after the close Tuesday.

Cisco Systems (down $1.78 to $26.58, Charts, Fortune 500) reported higher quarterly sales and earnings that topped estimates and issued an in-line forecast for the current quarter. But at the end of a strong earnings reporting period, investors were perhaps looking for more. Cisco shares fell 6 percent Wednesday.

Walt Disney (Charts, Fortune 500), a Dow component, reported higher quarterly earnings that topped estimates. However, the media leader also said sales increased just 1 percent, missing analysts' expectations. Shares fell 1 percent Wednesday.

Intel (up $0.29 to $22.44, Charts, Fortune 500), JP Morgan (up $0.70 to $53.15, Charts, Fortune 500), Honeywell (up $0.98 to $56.77, Charts, Fortune 500) and Caterpillar (up $0.99 to $74.42, Charts, Fortune 500) were among the stocks lifting the Dow.

Alltel (up $1.52 to $66.72, Charts, Fortune 500) is being pursued by three private equity groups in a deal that could value the rural telecom company at up to $30 billion, The Wall Street Journal reported. Alltel shares gained more than 2 percent.

Shares of Rio Tinto (up $29.44 to $294.09, Charts) jumped on reports that larger rival BHP Billiton (up $2.35 to $53.25, Charts) is looking to buy the miner in a deal that could be worth more than $100 billion.

Shares of Dendreon (down $10.94 to $6.80, Charts) slumped about 60 percent in unusually active Nasdaq trading after U.S. regulators said they needed more information before they could approve the biotech's cancer vaccine. One month ago, the U.S. Food and Drug Administration's advisory panel recommended approval of the drug.

Market breadth turned positive. On the New York Stock Exchange, advancers topped decliners by 5 to 3 on volume of 1.24 billion shares, while on the Nasdaq, winners beat losers by a narrow margin on volume of 1.79 billion shares.

U.S. light crude oil for June delivery fell 79 cents to $61.47 a barrel on the New York Mercantile Exchange after a government report said gasoline supplies rose last week, diminishing worries about any supply shortage ahead of the start of the summer driving season.

COMEX gold for June delivery fell $4.90 to $682.50 an ounce.