Greenspan, in testimony before a House committee, gave a better-than-expected assessment of inflation and the overall economy and reiterated the Fed’s current stance that it could remain patient before eventually raising interest rates.

Investors, having sat on the sidelines for weeks amid uncertainty about the economy, responded to Greenspan with a wave of buying. According to preliminary calculations, the Dow Jones industrial average gained 123.85, or 1.2 percent, to 10,737.70. It was the highest the Dow has been since June 13, 2001, and is less than 1,000 points shy of the index’s record close of 11,722.98, set on Jan. 14, 2000.

Broader stock indicators also rose sharply. The Standard & Poor’s 500 index was up 12.22, or 1.1 percent, at 1,157.76. The Nasdaq composite index climbed 14.33, or 0.7 percent, to 2,089.66.

Stocks drew the most momentum from the Fed’s lowered inflation estimate, which fell by 0.25 percentage point from its projection of last July.

"That in particular tells me that the Fed is not really concerned about inflation," said Jeff Kleintop, chief investment strategist for PNC Financial Services Group. "I think it’s positive for stocks in that it will keep rates low for a longer period of time."

While Greenspan stated that interest rates would eventually have to rise to combat inflation, investors were apparently satisfied when he did not give a timetable for a rate hike. They also ignored his warning that increasing federal budget deficits could hurt the economy.

"This rise is all about Greenspan," said Scott Wren, equity strategist for A.G. Edwards & Sons. "This is basically all good news, and the market needed to hear it."

The Fed chairman also said the GDP is now expected to grow between 4.5 and 5 percent in 2004, up from a July forecast of 3.75 percent to 4.75 percent. Investors interpreted the revision as a sign that corporate profits will also grow at a stronger rate this year.

As investors returned to the market, volume was much heavier than the average for the past few weeks, which saw uneven, directionless trading punctuated by single days of sharp movements based on the latest news.

Wall Street was also digesting a surprise $54 billion bid by cable company Comcast Corp. for The Walt Disney Co. The entertainment giant’s embattled chief executive, Michael Eisner, spurned a private offer from the cable company, which has now taken its bid public in hopes of gaining shareholder support.