US retail sales boost confidence - Fed says economy expanding

Wall Street held on to earlier gains, spurred by strong retail sales, after the US Federal Reserve said the economy was expanding moderately and confirmed it would keep interest rates low.

The Federal Open Market Committee kept its key rate steady and confirmed its previous goal of maintaining interest rates low at least through late 2014.

"Labour market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated," according to the Fed. "Household spending and business fixed investment have continued to advance. The housing sector remains depressed."

Policy makers noted that "longer-term inflation expectations have remained stable", even with the recent increase in petrol and crude oil prices.

"Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook," the Fed also said in its statement.

Evidence of a pick-up in US retail sales and German investor confidence bolstered optimism that economic growth might be on track after all.

American retail sales accelerated in February, climbing 1.1 per cent, according to Commerce Department data. That's the largest gain in five months and follows a 0.6 per cent increase in January that was larger than previously estimated, adding to recent indications of strength in the world's largest economy.

In Europe, signs were optimistic too as a report showed an increase in German investor confidence that surpassed expectations and euro-zone finance ministers approved a second rescue for Greece.

"Europe has improved from a crisis situation to a chronic condition," Stephen Wood, chief market strategist at Russell Investments in New York, told Reuters. "The data in America continues to grind upward, and investors can more effectively assess risk."

In early afternoon trading in New York, the Dow Jones Industrial Average climbed 0.87 per cent, the Standard & Poor's 500 Index advanced 0.95 per cent and the Nasdaq Composite Index rose 1.06 per cent.

Europe's Stoxx 600 Index ended the day with a 1.8 per cent jump.

Helping the mood in Europe was a report showing that investor confidence in Germany rose more than expected. The ZEW Centre for European Economic Research in Mannheim said its index of investor and analyst expectations climbed to 22.3 from 5.4 in February. This fourth straight gain surpassed economists' expectations.

Besides the EU nod for its bailout, Greece also received a lift from Fitch Ratings as the credit ratings agency raised its long-term foreign and local currency issuer default ratings to B- with stable outlooks from Restricted Default. Fitch cited the 96 per cent participation in the debt swap.

A brighter outlook lowered the appeal of fixed-income securities. As a result, German bunds dropped, sending 10-year yields up by the most in a month.

"Risk sentiment has improved," David Schnautz, a fixed-income strategist at Commerzbank in London, told Bloomberg. "Bund yields are close to recent lows, so there's some resistance to go lower. The ZEW survey was comfortably above expectations."