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U.S. stocks rose, sending the Dow Jones Industrial Average to the highest level since May, as the Federal Reserve signaled low rates through at least late 2014 and didn’t rule out bond purchases to bolster the economy.

A measure of commodity shares in the Standard & Poor’s 500 Index added 1.6 percent after gold rallied as record-low rates may boost its appeal as a hedge against inflation. Banks had the biggest drop in the S&P 500 among 24 groups as the industry may face pressure on margins from the Fed’s policy on rates. Apple (AAPL) Inc. climbed 6.2 percent to an all-time high as profit more than doubled. Textron Inc. (TXT), the maker of Cessna planes, surged 15 percent after forecasting higher-than-estimated earnings.

The S&P 500 added 0.9 percent to 1,326.06 at 4 p.m. New York time, after dropping 0.5 percent earlier. The Dow gained 83.10 points, or 0.7 percent, to 12,758.85. The Nasdaq-100 Index rose 1.3 percent to 2,465.66, the highest since 2001.

“The Fed is saying that money will stay easy and the cost of money will stay low,” Madelynn Matlock, who helps oversee about $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “The ability for businesses to find the money they need to grow and for consumers to find the money they need to buy things is going to be easier. That makes the growth path a little simpler.”

Benchmark gauges reversed losses as the Fed extended its previous pledge to keep rates low at least until the middle of 2013 as more than two years of economic growth have failed to push unemployment below 8.5 percent. Fed Chairman Ben S. Bernanke said central bankers are still debating additional asset purchases.

Earnings Season
Investors also watched earnings reports. Of the 112 S&P 500 companies that reported results since Jan. 9, 74 posted per- share earnings that beat projections, according to data compiled by Bloomberg. Earnings probably grew 3.4 percent for S&P 500 companies in the fourth quarter, the data show. The projection has fallen from 6.2 percent at the end of last year.

The Morgan Stanley Cyclical Index of companies most- dependent on economic growth added 1 percent. The Dow Jones Transportation Average advanced 1.5 percent. All 10 groups in the S&P 500 gained.

Gold producers rallied as the metal climbed to a six-week high. Newmont Mining Corp. (NEM), the largest U.S. gold producer, jumped 4.8 percent to $60.25. Freeport-McMoRan Copper & Gold Inc. (FCX), the world’s largest publicly traded copper producer, climbed 4.8 percent to $46.08.

Apple Rallies
Apple rallied 6.2 percent, the most since May 2010, to $446.66. The company sold 37 million iPhones in the period ended Dec. 31, with customers snapping up the new 4S model that went on sale in October, a week after the death of co-founder Steve Jobs. Record revenue vaulted Apple ahead of Hewlett-Packard Co. (HPQ) as the world’s biggest computer maker by sales and quelled concern that the company’s allure may dim as it embarks on a new era with Chief Executive Officer Tim Cook at the helm.

Textron surged 15 percent, the most in the S&P 500, to $24.76. Chief Executive Officer Scott Donnelly is working to leverage the company’s businesses with measures such as having Cessna and Bell share overseas service centers and sales forces. Textron is winding down its finance unit, which struggled during the recession.

The Bloomberg U.S. Airlines Index (BUSAIRL) of 11 companies jumped 4.5 percent. Delta Air Lines Inc. (DAL) and US Airways Group Inc. (LCC) reported fourth-quarter profits that topped analysts’ projections. Delta Air climbed 6.2 percent to $9.96. US Airways rallied 17 percent to $7.52.

M&A Deal
Illumina Inc. (ILMN) surged 46 percent to $55.15. Roche Holding AG offered $5.7 billion in a hostile bid for Illumina to bolster sales of gene-mapping equipment and services. Roche proposed paying $44.50 a share, 18 percent more than yesterday’s close.

Walter Energy Inc. (WLT) gained 3.9 percent to $70.14. The company may finally lure buyers willing to bet on a recovery in coal prices with the industry’s cheapest stock. After losing almost half its value in the past year, the producer of steelmaking coal sold for 9.3 times earnings this week, according to data compiled by Bloomberg. That was less than any North American coal-mining company with $1 billion in market capitalization.

Walter Energy, which bought Western Coal Corp. for $5.3 billion in April, is an attractive target because it produces high-grade steelmaking coal, Brean Murray Carret & Co. said. A buyer could spend double Walter Energy’s closing price of $67.54 a share yesterday and still get the company for less relative to earnings than any coal takeover in the past year, data compiled by Bloomberg show.

Banks (S5BANKX) Decline
Banks had the biggest decline in the S&P 500 among 24 industries, falling 0.3 percent. Bank of America Corp. and Citigroup Inc. (C) are among lenders that may find it harder to boost profits and capital after the Fed’s pledge on low rates. Bank of America rose 0.8 percent to $7.35. Citigroup added 0.2 percent to $29.96.

“This is a very dovish Fed,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “It’s an attempt to push down long-term interest rates. They are pushing the rates down to a level where consumers should find them very attractive, but banks will find them very unattractive.”

Corning Inc. (GLW) tumbled 11 percent, the biggest decline in the S&P 500, to $13.05. The largest maker of glass for flat-panel televisions said glass prices contributed to a 53 percent drop in fourth-quarter profit and are still sinking.

Xerox, WellPoint
Xerox Corp. (XRX) slumped 9.9 percent to $7.81. The provider of printers and business services gave earnings forecasts that trailed some analysts’ estimates as Europe weakens.

WellPoint Inc. (WLP) decreased 4.8 percent to $66.10. The largest U.S. health insurer by enrollment forecast 2012 earnings and reported fourth-quarter profit that were less than analyst estimates on higher medical costs.

“It’s going to be a mediocre earnings season,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a phone interview. His firm oversees $3.5 trillion as the world’s largest asset manager. “We’re not going to see robust growth this year and this is being reflected in corporate outlooks.”

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The dollar traded 0.2 percent from its weakest level in a month against the euro after the Federal Reserve extended its pledge to keep interest rates low until late 2014.

The yen held a three-day loss against the 17-nation euro as Asian stocks extended gains in U.S. equities, reducing demand for haven assets. Demand for Europe’s common currency was limited as talks on a Greek debt-swap plan resume today. New Zealand’s dollar remained higher even after the nation’s central bank held its target interest rate at a record low.

“The Fed’s pledge for a prolonged easing of monetary policy boosted risk-on sentiment,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest listed bank by market value. “Dollar selling is likely to continue across the board, and the bias is for the yen to be weaker too.”

The dollar traded at $1.3098 per euro as of 10:37 a.m. in Tokyo from $1.3106 in New York yesterday, when it dropped to $1.3121, the lowest level since Dec. 21. Japan’s currency slid to 101.98 per euro, the weakest since Dec. 26, before trading little changed at 101.90. The yen was unchanged at 77.78 against the dollar from yesterday, when it reached 78.28, the weakest since Nov. 29.

The MSCI Asia Pacific Index (MXAP) of stocks rose 0.8 percent following a 0.9 percent advance in the Standard & Poor’s 500 Index yesterday.

Fed Pledge
Economic conditions will likely “warrant exceptionally low levels for the federal funds rate at least through late 2014,” the Federal Open Market Committee said in a statement released in Washington yesterday. The Fed had previously pledged to keep its rate target in place until mid-2013.

The central bank also lowered its forecast for economic growth this year to a range of 2.2 percent to 2.7 percent, down from a projection of 2.5 percent to 2.9 percent in November. It predicted an expansion next year of 2.8 percent to 3.2 percent, down from a previous projection of 3.0 percent to 3.5 percent.

U.S. gross domestic product increased at a 3 percent annual rate in the fourth quarter, according to the median forecast of economists in a Bloomberg News survey before the Commerce Department’s releases the data tomorrow. That compares with a 1.8 percent advance in the previous three-month period.

“The Fed was more dovish than the markets had thought, given that recent data have been suggesting the U.S. economy is recovering at a modest pace,” said Mizuho’s Suzuki.

The euro halted a three-day advance amid concern European leaders will struggle to reach an agreement on reducing Greece’s debt burden as a means to stem the region’s sovereign crisis. Charles Dallara and Jean Lemierre, negotiating on behalf of private creditors, return to Athens today after European finance ministers insisted bondholders take bigger losses on their Greek debt.

Greek Debt Swap
While the International Monetary Fund suggested that public holders of Greek bonds might also have to increase support, the European Central Bank sees this as potentially damaging to confidence in the institution, according to two people familiar with the Governing Council’s stance, who declined to be identified because the matter is confidential.

“The bondholders seem to be splitting hairs about taking a big loss or a bigger loss,” said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York. “That is bringing on another wave of nervousness to the market.”

New Zealand’s dollar remained higher versus its U.S. counterpart even after the Reserve Bank of New Zealand Governor Alan Bollard said it is “prudent” for the central bank to keep interest rates at record low 2.5 percent.

“The RBNZ’s latest post-meeting statement was met with indifference,” Ray Attrill, a senior currency strategist at BNP Paribas SA in New York, wrote in a research note today. The so- called kiwi dollar is “free to fly again” with the passing of “event risk,” he said.

New Zealand’s dollar added 0.1 percent to 81.74 U.S. cents and fetched 63.57 yen from 63.53. Australia’s dollar traded at $1.0608 from $1.0597. It was at 82.52 yen from 82.43 yen.