Stocks rose on Tuesday after the Federal Reserve said it still saw moderate economic growth ahead even though credit conditions have tightened for some consumers and businesses.

The Fed, which also left interest rates unchanged at a policy meeting, buoyed the market by reassuring investors that problems in mortgage lending and corporate finance would not drag on the broader economy.

Oil prices rose in a stabilizing move after Monday's slide of 4.5 percent and lifted energy shares in Tuesday's session. Exxon Mobil Corp. gained 2.6 percent, leading the Dow industrials and the S&P 500 higher. Earnings from power company Duke Energy Corp. beat Wall Street's expectations, pushing its stock up 5.4 percent and driving the S&P utilities index up 2.1 percent for the day.

Financial shares rebounded after some initial disappointment that the Fed did not signal a rate cut as investors embraced the central bank's sanguine outlook.

It was more of a balanced reading. Yes, they may not cut rates soon, but the economy is in good shape, so that's good for the equity markets, said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois.

The Dow Jones industrial average rose 35.52 points, or 0.26 percent, to end at 13,504.30. The Standard & Poor's 500 Index gained 9.04 points, or 0.62 percent, to finish at 1,476.71. The Nasdaq Composite Index advanced 14.27 points, or 0.56 percent, to close at 2,561.60.

The relatively muted advance on the day for the Dow snapped a string of five straight sessions when the blue-chip average had net moves of at least 100 points up or down.

After the close, shares of Cisco Systems Inc., which makes routers and switches that direct Internet traffic, rose 5.4 percent to $31.30 in electronic trading after it posted a quarterly profit excluding special items that was slightly above expectations. Cisco also forecast revenue growth of 13 percent to 16 percent in fiscal year 2008. The stock closed on Nasdaq at $29.69, up 0.6 percent.

FINANCIALS FLY AFTER THE FED

In the regular session, the S&P financial index ended up 0.9 percent after initially falling 0.8 percent on the Fed's statement. Shares of Citigroup Inc. rose O.5 percent to close at $48.59 on the New York Stock Exchange.

A recovery in the beaten-down financial sector countered a drop in shares of big manufacturers earlier in the day.

Goldman Sachs Group denied market talk that it was liquidating its Global Alpha hedge fund and its shares rose 1.8 percent to $191.25.

Shares of American International Group, the world's largest insurer, rose 1.5 percent to $65.55 on the NYSE, a day ahead of its quarterly earnings report.

The decision by the central bank's Federal Open Market Committee kept the overnight federal funds rate at 5.25 percent, the level it hit in June 2006 after 17 straight quarter-percentage-point increases.

The statement comes amid rising default rates in the U.S. subprime mortgage market, which have sparked sell-offs and higher volatility in the stock market.

I don't think there is anything in the Fed announcement that was alarming. It's pretty much business as usual, stay the course, said Bill Fries, managing director of Thornburg Investment Management Co., in Santa Fe, New Mexico. The economy is healthy, corporate earnings shouldn't suffer, housing is not so bad that it is going to derail the rest of the economy.

But more news surfaced that pointed to increasing turmoil in the subprime mortgage lending market.

Luminent Mortgage Capital Inc suspended its quarterly dividend and said it was exploring options to boost liquidity. Its shares fell to $1.08.

Shares of CBRE Realty Finance Inc., a commercial real estate lender, dropped 31.6 percent to $4.25 after the company reported results hurt by the foreclosure on two Maryland condominium properties.

The stocks of Fannie Mae and Freddie Mac,the two largest U.S. home financing companies, climbed for the second day as they swept into the battered mortgage bond market to buy cheap debt. This week, both companies' shares have shot higher amid talk that regulatory restrictions limiting the size of their portfolios might be lifted. Fannie Mae's stock gained 3.1 percent to $64.43, while Freddie Mac's shares added 2.7 percent to $61.64.

OIL AND UTILITY STOCKS CLIMB

U.S. crude oil futures ended higher, aided by a rebound in gasoline and heating oil futures from heavy losses on Monday, and the stock market's late gains.

Shares of Exxon Mobil gained 2.6 percent to $85.70. An S&P index of oil and gas companies' shares advanced 2.3 percent.

On the earnings front, Duke Energy Corp. reported second-quarter results on Tuesday showing that its earnings per share, excluding one-time items and the impact of a spin-off, exceeded analysts' average forecast. Duke Energy's stock rose 5.4 percent to $18.86 on the NYSE. The stock is a component of an S&P index of utility companies' shares; that index rose 2.1 percent to end the session at 202.78.

Before the bell, the Labor Department said second-quarter unit labor costs, a gauge of inflation and profit pressures, rose more than economists' average expectation.

In addition, the department said productivity, a measure of what a worker produces in one hour, rose less than expected in the quarter.

During the regular session, trading was heavy, with about 2.25 billion shares changing hands on the New York Stock Exchange, above last year's estimated daily average of 1.84 billion. On the Nasdaq, about 2.84 billion shares were traded, above last year's daily average of 2.02 billion.

Advancers outnumbered decliners by a ratio of 19 to 14 on the NYSE and by 17 to 13 on the Nasdaq.

(Additional reporting by Cal Mankowski)

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