The S&P/TSX composite index, which was down for most of the day, closed up 97.29 points at 12,931.40 — its highest level since July 2011.
The Canadian dollar surged 0.70 of a cent to 97.83 cents US, after reaching an intra-day high of 98.03 cents US.
In a statement after its two-day meeting, the Fed said it won't slow its $85 billion a month in bond purchases until it sees more conclusive evidence that the U.S. economic recovery is being sustained.
The U.S. central bank said the economy is growing moderately and that some indicators of labour market conditions have shown improvement. But it noted that rising mortgage rates and government spending cuts are restraining growth.
The monthly bond purchases are intended to keep long-term loan rates low to spur borrowing and spending. Many had expected the bank to begin reducing them by about $10 billion so the surprise led to a dramatic rally on Wall Street.
Both the Dow Jones industrials index and the S&P 500 closed at record highs. The Dow surged 147.21 points to 15,676.94, and the S&P climbed 20.76 points to 1,725.52. The Nasdaq racked up a solid 37.94 points to 3,783.64
"Just about everybody was expecting … for them to at least do something, and so to do nothing, and to not even give a hint that they're even thinking about it (tapering) is very, very dovish of them," said Colin Cieszynski, an analyst with CMC Markets Canada.
Cieszynski said that in the short-term investors would rejoiced on the news, but the Fed decision paints a pretty weary outlook for the U.S.
"There's the early rush of great, the party keeps on going with all the money coming in, but tapering would've been a sign of strength and that it (the economy) doesn't need all this money to keep supporting it but if it still does, then what does that say?"
Fed chairman Ben Bernanke said there was "no fixed schedule," date or "magic number" for the bank to slow or end its bond purchases. He added that the Fed could still move to taper later this year but that the program won't necessarily end when U.S. unemployment reaches seven per cent. It is now at 7.3 per cent.
The Fed also revised its outlook on the economy, predicting that it will grow just two to 2.3 per cent this year, down from its previous forecast in June of 2.3 to 2.6 per cent.
"The risks out there are still significant enough for the Fed that they're prepared to absorb the risk of stimulating too much for too long," said Michael Gregory, managing director and senior economist at BMO Capital Markets in Chicago.
"They're prepared to accept that risk because they're worried. ... They want a little bit more evidence to make sure the economy truly has some underlying vigour."
Gregory said he doesn't believe tapering will come until the December meeting of the Fed, because the October meeting is too soon for any convincing economic data to come in.
"Given that they delayed a little bit, perhaps they'll start with a more forceful tapering hand because the economy would be better able to handle it. You just never know," he said.
Meanwhile, Bank of Canada governor Stephen Poloz noted in a speech that Canada should be able to support stronger growth without stoking inflation — a key factor on the central bank's interest rate decisions. The central bank has maintained its influential overnight interest rate at one per cent since September 2010.
On the corporate front, smartphone maker BlackBerry (TSX:BB) announced that its Z30 smartphone will hit the markets soon, even as a media report said the company is prepared to lay off as many as 5,000 employees in the coming months. BlackBerry recently formed a committee to consider strategic alternatives, which could include the sale of the company. Its shares fell 2.21 per cent, or 24 cents, to $10.64.
The health-care sector sustained the greatest losses on the TSX, as it fell 2.22 per cent, with shares in Catamaran Corp. (TSX:CCT) dropping nine per cent, or $5.14 to $51.94.
The news that the Fed will continue to pump stimulus money into Treasurys and mortgage bonds lifted the gold sector, making it the leading advancer on the TSX. The sector climbed 8.40 per cent, as Barrick Gold Corp. (TSX:ABX) saw its shares gain nearly 10 per cent, or $1.79 cents, to $20.66. December bullion closed down $1.80 at US$1,307.60 an ounce.
The energy sector added 0.67 per cent as the October crude contract gained $2.65 cents to US$108.07 a barrel. The metals and mining sector was up 2.83 per cent , while December copper was ahead six cents to US$3.28 a pound.