NEW YORK - US stocks soared on Thursday, sending the Nasdaq up almost 3 per cent as investors interpreted the Federal Reserve's long-awaited policy statement as a signal the central bank may pause after its latest interest-rate increase.

While the central bank's quarter-percentage point increase to the benchmark federal funds rate to 5.25 per cent was widely expected on Wall Street, the Federal Open Market Committee also said moderating economic growth could limit inflation going forward.

"The market is clearly telling us that it thinks this could be the end of the Fed tightening cycle. The Fed appears to at least be admitting that the economy is slowing down," said John Norris, chief economist and senior fund manager at Morgan Asset Management in Birmingham, Alabama. "The market really seems to like it." The Nasdaq Composite Index shot up 62.54 points, or 2.96 per cent, to 2,174.38, its biggest percentage gain since March 2004. The Dow Jones industrial average surged 217.24 points, or 1.98 per cent, to 11,190.80, the blue-chip average's biggest percentage gain since April 2005. All 30 components of the Dow ended higher.

The Standard & Poor's 500 Index climbed 26.87 points, or 2.16 per cent, to 1,272.87, its biggest gain since October 2003. The rally drove the S&P 500 back up into positive territory again for the year.

APPLE AND PALM FALL LATE

After the closing bell, shares of Apple Computer Inc. slid 2.6 per cent to US$57.45 in late trading on the Inet electronic brokerage network following news that it was investigating stock option grants.

That marked a reversal from Apple's gains during the regular session when it was among the stocks that led the Nasdaq sharply higher after the Fed's decision. In regular trading, Apple shares jumped 5.3 per cent, or US$2.95, to US$58.97 -- just a day after falling in the wake of some analysts expressing concern about its outlook.

Shares of Palm Inc. also declined in extended-hours trading after the handheld computer and phone maker gave a current-quarter earnings outlook that was below analysts' estimates.

Palm shares fell 8.4 per cent to US$17.10 on Inet from a Nasdaq close at US$18.66.

BANK STOCKS DO A LITTLE DANCE

Rate-sensitive shares such as financial services companies were some of the top gainers, with Citigroup Inc. and American Express Co. helping pull the Dow and the S&P 500 higher.

Shares of Citigroup rose 2.1 per cent, or US$1.01, to US$48.86, while American Express climbed 3.3 per cent, or US$1.71, to US$53.89.

Countrywide Financial Corp., the largest US mortgage lender, gained 2.1 per cent, or 77 cents, to US$38.07.

An index of home builders' stocks advanced 3.1 per cent.

GOOD DAY FOR GOOGLE

On the Nasdaq, Google Inc. was the top-weighted gainer after the Web search company launched a service to give online sellers an easy way to add a checkout to their sites.

Google shares rose 2.9 per cent, or US$11.70, to US$417.81.

Stocks whose fortunes are closely tied to economic cycles, such as diversified manufacturer United Technologies Corp. and manufacturer 3M Co., were among the Dow's heaviest-weighted advancers following stronger-than-expected economic data.

Analysts said news that first-quarter US gross domestic product grew at the fastest pace in 2-1/2 years, reported this morning by the Commerce Department, bodes well for the corporate earnings outlook.

Aside from corporate optimism, fund managers bought the best-performing stocks of the quarter -- like United Technologies -- and sold the worst performers in a quarter-end ritual known as "window dressing" aimed at making their portfolios look good for investors.

United Technologies shares rose 3.2 per cent, or US$1.96, to US$63.29, while 3M shares rose 2.4 per cent, or US$1.87, to US$81.15.

Crude oil for August delivery rose US$1.33 to settle at US$73.52 per barrel amid strong petrol demand before the US Independence Day holiday weekend.

Exxon Mobil Corp., the world's biggest publicly traded oil company, was the biggest gainer in the S&P 500, with its stock up 2.1 per cent, or US$1.25, at US$62.37 on the NYSE.

Volume was heavy on the NYSE, with about 1.89 billion shares changing hands on the Big Board, exceeding last year's daily average of 1.61 billion. On Nasdaq, about 2.26 billion shares traded, above last year's daily average of 1.80 billion.

Advancing shares outnumbered declining ones by a ratio of almost 6 to 1 on the NYSE and about 4 to 1 on the Nasdaq. (Additional reporting by Emily Chasan)

- REUTERS