Using language nearly identical to the statement it issued on Nov. 10, the Fed's Open Market Committee raised the nation's benchmark interest rate by a quarter percentage point to 2.25 percent. Stocks moved solidly into positive territory on the news, as buyers who had stuck to the sidelines ahead of the announcement returned to the market.

Wall Street had been disappointed earlier in the day by the latest reading of the nation's trade deficit, which surged to a record $55.5 billion in October. Continued demand for Chinese imports and the high cost of oil contributed to the growing deficit, which was much larger than the $52.4 billion Wall Street had expected. But while the numbers looked bad from a monetary perspective, they showed continued consumer spending, which some took as a bullish sign.

The Fed's latest move suggests there is "a green light for further rate increases," said Hans F. Olsen, chief investment officer at Bingham Legg Advisers, who thinks the markets are already anticipating a series of gradual hikes to at least 3 percent next year. In the near-term, getting 2004's final rate hike out of the way helped investors focus on the day's other news.

"There seems to be a reawakening of merger and acquisition activity, and signs are there that people are continuing to spend at a healthy clip," Olsen said. "Put those two things together, and this rate increase, which was widely expected, and whatever surprises the market has seen have been pleasant surprises."

According to preliminary results, the Dow Jones industrial average closed up 38.13, or 0.36 percent, at 10,676.45, extending yesterday's 95-point gain.

Broader stock indicators were also higher. The Standard & Poor's 500 index gained 4.70, or 0.39 percent, to 1,203.38, rising to a level where it hasn't traded since August of 2001. The Nasdaq composite index rose 11.34, or 0.53 percent, to 2,159.84.

Adding to the market's upbeat mood, oil prices appeared to be holding steady in the $41 range. Light, sweet crude for January delivery settled up 81 cents, or 2 percent, at $41.82 per barrel on the New York Mercantile Exchange, nearly $14 cheaper than the record settlement price of $55.17 set in October.

Buoying tech stocks, the New York Times reported that Symantec Corp. was in talks to acquire Veritas Software Corp. for $13 billion. A deal could be announced later this week, the newspaper said. Symantec tumbled $5.41, or 16 percent, to $27.45; Veritas surged $2.19, or 8.7 percent, to $27.38.

Verizon Communications Inc. shed 24 cents to $41.04 on reports that the company's wireless arm would offer $36 billion for Nextel Communications Inc., topping Sprint Corp.'s $35 billion offer. Nextel was unchanged at $29.99, while Sprint climbed 66 cents to $25.10.