The Fed's Open Market Committee announced a widely expected quarter percentage point hike in the nation's benchmark lending rate, to 3 percent, and said future rate hikes would remain "measured," a phrase designed to ease investors' fears of more aggressive increases.

Most of the statement that accompanied the latest rate move was unchanged from the Fed's March 22 meeting, stating that long-term inflationary pressures "remained well contained." The central bank acknowledged that higher energy prices are starting to slow spending growth, but that wasn't enough for the Fed to abandon its approach to rate hikes.

"It's pretty much the same as last time, and it shows the Fed's not overly pessimistic about the economy," said Jack Ablin, chief investment officer with Harris Private Bank in Chicago. "The fact that they're not changing their underlying longer-term strategy here adds a certain degree of comfort for investors."

The Dow Jones industrial average rose 5.25, or 0.05 percent, to 10,256.95. The Dow was down 46 points five minutes before the close, but surged into positive territory after the Fed amended its policy statement to add the wording about inflation being contained, which had been inadvertently omitted.

Broader stock indicators finished narrowly mixed. The Standard & Poor's 500 index was down 0.99, or 0.1 percent, at 1,161.17. The Nasdaq composite index gained 4.42, or 0.23 percent, at 1,933.07.

Falling crude prices gave a little support to stocks, with a barrel of light crude settling at $49.50, down $1.42, on the New York Mercantile Exchange. The bond market slipped lower, with the yield on the 10-year Treasury rising to 4.20 percent from 4.19 percent late yesterday. The dollar was mixed against other currencies in European trading, and gold prices fell.

Wall Street again received mixed messages on the economy, with American factories showing a tiny 0.1 percent increase in orders last month, better than the large drop economists had forecast. However, the vast majority of orders were for consumable goods, while orders for big-ticket, durable items fell sharply — a sign that consumers aren't making the big purchases that fuel economic growth.

Thus, investors were looking to Fed Chairman Alan Greespan and his fellow policy makers for a read on the economy and whether slower growth will outweigh concerns about inflation. For now, at least, the Fed seems more concerned about pricing pressures and the possibility of inflation taking hold rather than a short-term economic slowdown.

"People were thinking that Fed would address the economy, maybe be a little more flexible on rates to allow the economy to get over the slowdown, but they obviously aren't as concerned about that," said Jack Caffrey, equity strategist for J.P. Morgan Private Bank.

While stocks have recovered modestly from a terrible April, Wall Street had been hoping that a strong, positive statement from the Fed would help stocks push upward even further. Uncertainty over the economy has kept stocks from moving substantially off their 2005 lows.

"Right now, the market has stabilized, but until we get some more data on how much the economy is going to slow, how much earnings are going to slow, I don't think you can make any stronger statement than that," said Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, N.Y. "It's clear the economy is slowing, but investors want to know how much and how far."

The Fed has steadily issued quarter percentage point rate hikes since June, when the benchmark rate stood at just 1 percent.

In company news, Tyco International Ltd. dropped $2.07 to $28.65 in heavy trading after the high-tech manufacturer said second-quarter profits dropped 75 percent on a number of one-time charges. While Tyco beat Wall Street's profit expectations by a penny per share, investors were disappointed with a lower-than-expected forecast for future quarters.

Shares of Boeing Co. and Lockheed Martin Corp. rose after they announced a joint venture to produce rockets for the U.S. military, ending a bitter rivalry and setting the stage for the defense contractors to drop pending litigation involving the rocket business. Boeing was up 49 cents at $59.87; Lockheed added 55 cents to $62.41.

Oshkosh Truck Corp., one of the U.S. military's top vehicle suppliers in Iraq, tumbled $4.73 to $72.02 despite reporting earnings that exceeded its best estimates for the second quarter and a profit outlook that surpassed analysts' expectations.

Qwest Communications International Inc. slipped a penny to $3.46 after dropping out of a bidding war for MCI Inc. to rival Verizon Communications Inc. Qwest reporting earnings of 3 cents per share today; analysts surveyed by Thompson First Call had anticipated a loss of 11 cents.

Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange, where preliminary consolidated volume came to 2.16 billion shares, compared with 2 billion yesterday.

The Russell 2000 index of smaller companies was down 1.38, or 0.24 percent, at 584.48.

Overseas, Japanese financial markets were closed today for Constitution Day, a national holiday. Trading will resume on Friday after the annual "golden week" holidays. In Europe, Britain's FTSE 100 closed up 1.24 percent, France's CAC-40 rose 0.4 percent for the session, and Germany's DAX index gained 0.51 percent.