By Chuck Mikolajczak
NEW YORK (Reuters) - U.S. stocks rallied to a record high on Wednesday after the Federal Reserve surprised investors by saying it would not begin to cut its bond-buying program that has been a driving force behind Wall Street's climb of more than 20 percent this year.
After a mostly quiet session leading up the announcement, the S&P 500 showed a gain of nearly 1 percent after the central bank would continue buying bonds at an $85 billion monthly pace for now.
Market participants had largely been expecting the central bank to begin a withdrawal of the bond-buying program by about $10 billion a month.
"No taper, the market loves it, we will see if that lasts but boy, we are off to the races," said Brad McMillan, Chief Investment Officer for Commonwealth Financial in Waltham, Massachusetts.
"From a short term stock market perspective it can be seen as a good thing because the market likes to see continued Fed stimulus. From a real economy standpoint, what it says is the Fed is actually more nervous about the economy than is generally perceived."
The Dow Jones industrial average rose 109.28 points or 0.7 percent, to 15,639.01, the S&P 500 gained 15.54 points or 0.91 percent, to 1,720.3 and the Nasdaq Composite added 26.887 points or 0.72 percent, to 3,772.586.
The Fed now sees growth in a 2 percent to 2.3 percent range this year, down from 2.3 percent to 2.6 percent in its June estimates. The downgrade for next year was even sharper: 2.9 to 3.1 percent, from 3.0 to 3.5 percent.
A White House official said Federal Reserve Vice Chair Janet Yellen is the front runner to take over the top job at the U.S. central bank when Ben Bernanke steps down, the strongest indication yet of her likely nomination.
Materials stocks rallied as the dollar fell to a seven-month low versus the euro and gold rallied after the announcement. Newmont Mining Corp
Looking beyond the Fed, market participants had an eye on the looming budget and debt limit debate in Washington. The White House said Wednesday the latest Republican proposal moves away from compromise.
(Reporting by Rodrigo Campos; Editing by Nick Zieminski)