NEW YORK — The Fed confirmed what Wall Street has already concluded: The recession is starting to ease.
Federal Reserve policymakers said at the end of a two-day meeting Wednesday that though the economy is receding, the pace of decline "appears to be somewhat slower" than the last time they met in mid-March.
That was confirmation enough for the stock market. Major indexes, which had already been up sharply ahead of the announcement on other signs that the economy is stabilizing, posted gains of more than 2 percent. The Dow Jones industrial average jumped 169points to its highest close since Feb.9.
"You had the Federal Reserve endorsing the basic stance that the economy is beginning to stabilize," said Bruce McCain, chief investment strategist at Key Private Bank.
The Dow is now 25 percent above its early March lows, though stocks have been unsteady over the past several days on fears of a potential swine flu pandemic and persistent concerns about the country's biggest banks.
Stocks began the day higher as investors responded to bright spots within a weaker-than-expected report on the nation's economic output for the first three months of the year.
Gross domestic product contracted at an annual rate of 6.1 percent, much steeper than the 5 percent forecast by economists polled by Thomson Reuters. But the glimmers of good news in the report drove the Standard & Poor's 500 to its highest trading level since late January.
Investors were encouraged by a rebound in consumer spending and a decline in business inventories. On President Barack Obama's 100th day in office, the GDP report provided signs that the nation is seeing its economic slide start to moderate.
The Dow jumped 168.78, or 2.1 percent, to 8,185.73. The gain leaves the blue chips down about 591 points, or 6.7 percent for the year.
The Standard & Poor's 500 index gained 18.48, or 2.2 percent, to 873.64, its highest close since Jan. 28.
The Nasdaq composite index advanced 38.13, or 2.3 percent, to 1,711.94. The tech-heavy index posted its highest finish since Nov. 4 and is up 8.6 percent for the year.
Michael Sheldon, chief market strategist at Westport, Conn.-based RDM Financial, said the drop in business stockpiles "should set the stage for a pickup in production, employment and profits."
Investors are still nervous that some banks, notably Citigroup and Bank of America, might have to get more capital from the government or other investors.
Better-than-expected earnings have been boosting the market as well. Media conglomerate Time Warner's first-quarter profit fell 14percent on deteriorating ad sales, but the results were better than expected. Defense contractor General Dynamics's first-quarter earnings rose 3 percent on sales of warships and other military equipment.
Light, sweet crude rose $1.05 to settle at $50.97 a barrel in New York.
Overseas, Britain's FTSE 100 rose 2.3 percent, Germany's DAX index rose 2.1 percent, and France's CAC-40 rose 2.2 percent. Japan's Nikkei stock average fell 2.7 percent.