The S&P/TSX composite index jumped 109.68 points to 12,537.69 as the Fed left its key interest rate near zero and said that it expects to keep rates exceptionally low through at least late 2014.
The TSX Venture Exchange slipped 8.72 points to 1,627.37 while the Canadian dollar gained 0.35 of a cent to 101.09 cents US.
The Fed said strains in global financial markets have eased, household and business spending have continued to advance and labour conditions have continued to improve.
U.S. markets gained momentum following the Fed decision as the Dow industrials surged 217.97 points to 13,177.68, the highest since Dec. 31, 2007. The Nasdaq was ahead 56.22 points at 3,039.88 and the S&P 500 index moved up 24.87 points to 1,395.96.
Markets had been higher all session after strong U.S. retail sales numbers also reinforced the view that the American economy continues to improve. Sales ran ahead 1.1 per cent last month.
It was the biggest gain since September and the data provided evidence that a stronger job market is boosting the economy.
"The jobs picture is picking up, we had a good retail sales number, that’s showing some confidence, that’s important," said John Stephenson, portfolio manager at First Asset Funds Inc.
Auto sales were strong and department stores had their biggest gain in more than a year. Even without a 3.3 per cent rise in gasoline sales, retail sales would have increased a solid 0.8 per cent.
Banking giant J.P. Morgan Chase & Co. also energized markets after it raised the quarterly dividend by five cents to 30 cents a share and approved a $15 billion stock repurchase program.
J.P. Morgan also said the Federal Reserve did not find any problems with its stress test results.
The Federal Reserve announced late in the session that it would release the results of its so-called stress test of 19 financial institutions at 4:30 p.m. EDT Tuesday. The release had been planned for Thursday.
Optimism that other U.S. banks will get a clean bill of health helped send Toronto's financial sector up about 1.5 per cent
Manulife Financial (TSX:MFC) rose 38 cents to $12.65 while Royal Bank (TSX:RY) gained $1.22 to $58.
The TSX base metals sector led advancers, up 2.54 per cent as May copper rose six cents to US$3.90 a pound. Teck Resources (TSX:TCK.B) climbed $1.04 to C$36.53 and HudBay Minerals (TSX:HBM) gained 21 cents to $11.70.
Tech stocks were also strong with Research In Motion Ltd. (TSX:RIM) ahead 31 cents to $13.36 while Celestica Inc. (TSX:CLS) was up 57 cents to $10.
The April crude contract on the New York Mercantile Exchange gained 37 cents to US$106.71 a barrel. The energy sector was up 1.3 per cent and Suncor Energy (TSX:SU) improved by 85 cents to C$34.03 and Imperial Oil (TSX:IMO) up 81 cents to $45.89.
The gold sector was the leading decliner, down about 1.25 per cent as bullion prices slipped $5.60 to US$1,694.20 an ounce. Iamgold (TSX:IMG) gave back 26 cents to C$13.70 and Goldcorp Inc. (TSX:G) lost 73 cents to $45.52.
The positive showing in Toronto followed a 76-point decline Monday and two straight weeks of declines. Some analysts feel that the TSX is ripe for some consolidation after rolling ahead steadily since early October with hardly a break. And they think that markets will need another catalyst to provide another leg up to the rally, likely in the form of a positive run of first-quarter earnings reports.
"I don’t see any reason to see the markets trade higher or frankly trade that much lower until you get another catalyst," Stephenson said.
In earnings news, Canadian media company and publisher Transcontinental Inc. (TSX:TCL.A) reported a $33.3-million loss, or 41 cents per share, compared with a profit of $25.7 million, or 32 cents per share, a year earlier. Adjusted net income was down six per cent to $27.1 million, or 33 cents per share, a penny lower than analyst expectations.
Revenues decreased four per cent to $495.9 million from $514.8 million.
Transcontinental also said it is raising its dividend by seven per cent to 14.5 cents and its shares added two cents to $12.90.
Shares in Alimentation Couche-Tard (TSX:ATD.B) gained 49 cents to $31.91 as the convenience store operator beat analyst forecasts. Net earnings soared nearly 25 per cent to US$86.8 million in the third quarter of its fiscal year.
In other corporate news, shares in Valeant Pharmaceuticals International (TSX:VRX) were off 18 cents to $54.09 as it said it is expanding its presence in eastern Europe by acquiring Austrian generic drug company Gerot Lannach's assets, primarily in Russia, for less than $185 million. Gerot Lannach's largest product is acetylsalicylic acid, a low dose aspirin. The company said total sales of these products was about $55 million last year, up more than 20 per cent from 2010.