Wall Street edges up after Fed holds tight on rates

By Lewis Krauskopf

NEW YORK (Reuters) - U.S. stocks added slightly to gains on Wednesday after the Federal Reserve kept interest rates unchanged and said it expected to start winding down its massive holdings of bonds "relatively soon" in a sign of confidence in the U.S. economy.

The U.S. central bank's statement did not dramatically sway Wall Street's major indexes, which hit record highs earlier in the session on a busy day of corporate earnings reports.

As broadly expected by investors, the Fed maintained its benchmark lending rate and said it was continuing the slow path of monetary tightening.

In its statement following a two-day policy meeting, the Fed's rate-setting committee indicated the economy was growing moderately and job gains had been solid. But it noted that both overall inflation and a measure of underlying price gains had declined and said it would "carefully monitor" price trends.

"The statement was mildly more dovish than expected," said Omer Esiner at Commonwealth FX in Washington. "The Fed's assessment of the inflation backdrop amounted to a very modest downgrade of the overall inflation situation and could signal slightly more concern on the part of the Fed with respect to their forecast for inflation."

The Dow Jones Industrial Average rose 97.07 points, or 0.45 percent, to 21,710.5, the S&P 500 gained 1.92 points, or 0.08 percent, to 2,479.05 and the Nasdaq Composite added 7.11 points, or 0.11 percent, to 6,419.29.

Telecommunications <.SPLRCL> were the best performing sector, propelled higher by a 4.9 percent gain in AT&T after its results.

Financials <.SPSY>, which tend to perform better when interest rates rise, were off 0.4 percent, holding losses from before the Fed announcement.

Following the statement, traders' bets that the Fed would raise rates at its December meeting stood at only 35 percent, according to Thomson Reuters data.

"They are, I don't want to use the word 'trapped' because the market has kind of bailed them out with one event or another, but they are in a tough spot here for the rest of 2017," said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago. "Even that last hike looks like it might be a difficult one to make."

(Additional reporting by Saqib Iqbal Ahmed and Chuck Mikolajczak in New York and Tanya Agrawal in Bengaluru; Editing by Nick Zieminski and James Dalgleish)