The S&P 500 closed at its highest level since May 2008 after Fed chairman Ben Bernanke hinted the US central bank would keep in place its supportive monetary policy.
He said the Fed needed to "remain cautious", which many analysts took as a sign interest rates would stay at record lows until 2014.
The S&P 500 climbed 1.4% to 1,416.51, while the Dow Jones rose 1.2% and the Nasdaq gained 1.8% to close at 3,122.57, its best finish since November 2000.
Speaking to economists in Virginia, Bernanke warned the job market remained weak despite three months of strong hiring.
The US economy has added an average of 245,000 jobs a month from December to February, and the unemployment rate has fallen to 8.3% from 9.2% in June last year.
But Bernanke said: "Despite the recent improvement, the job market remains far from normal. The number of people working and total hours worked are still significantly below pre-crisis peaks."
The Fed is also concerned the US recovery could stall. The economy grew at an annualised rate of just 3% in Q4 2011, and economists believe growth may have slowed to an annual pace of about 2% in Q1 2012.
Robert Dye, chief economist at Comerica Bank in Dallas, told the BBC the central bank may even take further steps to boost the economy, such as launch another round of asset purchasing.
"The chairman is very much keeping additional monetary policy options on the table," Dye said.
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