NEW YORK (CNNMoney.com) -- Stocks closed higher Tuesday after the Federal Reserve voted to keep interest rates at historic lows and Standard & Poor's did not downgrade Greece's credit rating.
The Dow Jones industrial average (INDU) rose 44 points, or 0.4%. The S&P 500 index (SPX) added 9 points, or 0.8%, to close at a fresh 18-month high. The Nasdaq composite (COMP) gained 16 points, or 0.7%.
Stocks have been grinding higher in recent weeks as traders remain bullish about the economic recovery. But the number of shares trading hands has been relatively low, suggesting that many investors are on the sidelines awaiting more concrete evidence of improvement.
"The market has been in an optimistic mania," said Bruce McCain, chief investment strategist at Key Private Bank. "For whatever reason, investors have cast aside worries and money is flowing into both stocks and bonds."
However, it remains to be seen if the optimism can be sustained.
"We think this is a transition phase for the economy," McCain said. "There are plenty of opportunities for investors to become discouraged."
Looking ahead, investors will take in a report on inflation at the wholesale level Wednesday. Reports on consumer prices and weekly jobless claims will be in focus later this week.
On Monday, stocks closed mixed after Moody's issued a warning about the United States' AAA rating and lawmakers put forward a bank regulation bill.
Fed holds rates: In a widely expected move, the Federal Reserve announced plans to hold its benchmark interest rate at historic lows near zero percent, the level at which the rate has been since December 2008. Echoing past statements, the Fed added that rates will remain "exceptionally low" for an "extended period" of time.
The Fed said economic conditions continue to improve and that the job market is stabilizing. While the Fed expects economic growth to be "moderate" in the short run, the bankers said activity could pick up in the future as inflation remains tame.
As previously announced, the Fed said its plan to buy $1.25 trillion in mortgage-backed securities will end later this month.
"Not a big surprise," Key Private Bank's McCain said of the Fed's announcement. "They have gone out of their way to indicate improvement, while continuing the fight to establish economic growth."
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, was the one dissenting vote. Hoenig, who was also the sole dissenter at the Fed meeting in January, is concerned that keeping rates low indefinitely could be creating new bubbles in financial markets.
"Even the description of Hoenig's position seems to be a bit more strident," McCain said.
Greece gets a reprieve: Stocks were also supported by news that ratings agency Standard & Poor's did not cut Greece's credit rating after warning last month that a downgrade was possible.
"That's allaying some fears about the potential for the sovereign debt crisis to spread," said Abigail Doolittle, a portfolio manager at Johnson Illington Advisors. However, she added that many large European nations and U.S. states are still facing dire fiscal scenarios.
S&P said its decision was based on deficit reduction measures Greek policy makers introduced in March, which aim to reduce the nation's budget deficit to 8.7% of gross domestic product this year.
"We view the government's fiscal consolidation program as supportive of the ratings at their current level," said Standard & Poor's credit analyst Marko Mrsnik.
Still, the agency said the outlook for the debt-stricken nation remains negative.
Economy: New home construction fell 5.9% to an annual rate of 575,000 in February, according to a government report, from an upwardly revised 622,000 during the previous month.
Economists surveyed by Briefing.com expected housing starts to have fallen to an annual rate of 570,000 during the month.
The report said building permits slipped 1.6% to an annual rate of 612,000 in February. They were expected to have fallen to an annual rate of 601,000 during the month.
A separate reading showed import prices slipped 0.3% in February, posting the first decline since July 2009. Excluding fuel, import prices gained 0.2%. Import prices in January were revised to a 1.3% increase.
Export prices slipped 0.5% last month, following a revised 0.7% rise in January.
Boston Scientific (BSX, Fortune 500) recovered from a drubbing in the previous session to trade 4.3% higher. Shares of the medical device maker fell 16% Monday after the company halted delivery on some implantable defibrillators because it neglected to notify federal regulators of a manufacturing change.
Lehman Brothers Holdings submitted a proposal to the U.S. Bankruptcy Court in New York to resolve the biggest Chapter 11 filing in Wall Street history.
The defunct brokerage, which collapsed in September 2008, would form a subsidiary called LAMCO to oversee its remaining assets, which include commercial real estate, residential mortgages and derivatives.
The dollar and commodities: The dollar slipped versus the euro, the pound, and the yen.
U.S. light crude for April delivery rose $1.90 to settle at $81.70 a barrel.
The price of gold rose $17.10 per ounce to settle at $1122.50.
Bonds: The price of the 10-year note fell, boosting the yield to 3.65%. Treasury prices and yields move in opposite directions.
World markets: European markets rose. The CAC 40 in France and Germany's DAX both gained about 1.4%, while Britain's FTSE 100 advanced 0.6%.
European finance ministers said late Monday that euro area countries have developed a mechanism to help Greece if it determines that the debt-stricken country needs to be rescued.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.80%||3.88%|
|15 yr fixed||3.20%||3.23%|
|30 yr refi||3.82%||3.93%|
|15 yr refi||3.20%||3.23%|
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