NEW YORK (AP) - Stocks extended their gains after the Federal Reserve said the economy is showing more signs of recovery.

The Dow Jones industrial average rose 140 points Wednesday after the Fed, as expected, also left its benchmark interest rate unchanged at a record low of essentially zero.

The central bank's statement accompanying its rate decision confirmed that the economy is slowly rebounding. It noted that housing activity has picked up in recent months, and that consumer spending, while still contrained by unemployment and other problems, also appears to be growing.

Policymakers said they would keep interest rates low for an ``extended period'' and said inflation is likely to remain tame. That eased some worries that rising prices would force the Fed to boost interest rates and risk cutting off a nascent recovery in the economy.

``It's definitely dovish. We think it supports continued market progress over the next few months,'' said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

He added, however, that investors will now be asking more urgent questions about whether inflation will emerge.

Investors have grown fearful that the economic rebound they've been betting on over the past eight months will be fleeting, considering that job losses remain high and consumers still aren't spending freely. Stocks have zigzagged over the past few weeks amid the heightened uncertainty.

Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. said that there wasn't much surprise from the central bank.

``The Fed is going to keep an easy monetary policy and there was no real indication of that changing anytime soon, that bodes well for stocks - basically a green light for stocks.''

The day's gains came as reports on service industries and employment eased two of the biggest worries about the economy. The reports bolstered hopes that consumers could increase consumer spending, a critical factor for an economic recovery.

In midafternoon trading, the Dow rose 141.02, or 1.4 percent, to 9,912.93. It had been up 115 ahead of the announcement.

The broader Standard & Poor's 500 index rose 14.03, or 1.3 percent, to 1,059.44, and the Nasdaq composite index rose 19.00, or 0.9 percent, to 2,076.32.

11/04/09 15:07 © Copyright The Associated Press. All rights reserved. The information contained In this news report may not be published, broadcast or otherwise distributed without the prior written authority of The Associated Press.