U.S. stocks clawed back most of Monday's losses as a U.S. Federal Reserve promise of at least two more years of near-zero interest rates overshadowed its warning about slowing economic growth. The Fed's statement gave markets a glimmer of hope, with stocks' gains accelerating into Tuesday's close.

In a sign investors were not entirely convinced of the Fed's ability to stave off another recession, they sought safer bets, including the Swiss franc and gold. Gold GCZ1 pared its early gain to record levels but was still up about 1 percent at just above $1,728 an ounce.

But Wall Street still almost reversed Monday's meltdown -- the steepest fall in nearly three years. However, the S&P 500 is down 14 percent from its April peak, with the bulk of selling coming after a downgrade to U.S. debt and festering concern about the euro zone's inability to solve its own persistent credit problems.

MSCI's all-country world stock index .MIWD00000PUS rose 2.1 percent. Short-term Treasury bond yields hit record lows as investors speculated that the central bank would soon return to the bond market, little more than a month after the end of its last big program of purchases.

The Fed said it would keep its existing monetary stimulus on track and offered a long two-year timeframe for rates to stay low. Although it offered no new monetary initiatives, it said it was prepared to do more if necessary. "It's basically giving more credence to the fact that they are going to be accommodative for a much longer period of time, which in general has been a positive for equities," said Mohannad Aama, managing director at Beam Capital Management LLC, a hedge fund in New York.

The Fed also said U.S. economic growth was proving considerably weaker than expected, suggesting inflation, which has already moderated recently, will remain contained for the foreseeable future.

Some investors hoping for action from the Fed had acknowledged the cental bank's options to be limited because the current crisis is not liquidity-driven, as it was in 2008. "All they did was extended the period that they are going to be on hold - that is meaningless here," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"Where does (Fed Chairman Ben) Bernanke go next?"
The Dow Jones industrial average .DJI gained 429.92 points, or 3.98 percent, to 11,239.77. The Standard & Poor's 500 Index .SPX jumped 53.07 points, or 4.74 percent, to 1,172.53. The Nasdaq Composite Index .IXIC climbed 124.83 points, or 5.29 percent, to 2,482.52. U.S.-dollar denominated Nikkei futures .NKc1 edged up 0.6 percent.

The dollar tumbled against the Swiss franc, yen and euro . The dollar fell 4.6 percent to 0.7198 Swiss franc after hitting a record low of 0.70676. The franc also climbed to a record high of 1.0075 against the euro , before retreating. Two-year Treasury notes US2YT=RR were last up 4/32 in price to yield 0.20 percent, and three-year notes rose 10/32 in price, with yields dropping to 0.32 percent.

Five-year notes rose 12/32 in price, with yields falling to 1.00 percent, while 10-year notes were last up 10/32 in price to yield 2.28 percent. Thirty-year bonds were last up 4/32 in price to yield 3.65 percent, after earlier falling as low as 3.46 percent. In London, Brent crude oil futures turned positive post-settlement as stocks jumped late in the day, while U.S.
oil finished lower.

ICE Brent crude for September delivery CLU1 rose 47 cents to $104.21 a barrel by 4 p.m. EDT (2000 GMT). It had settled
earlier at a five-month low of $102.57, down $1.17, or 1.13 percent, after trading between $98.74 and $105.95.
U.S. September crude CLU1 pared losses, but was still down 70 cents at $80.61 a barrel post-settlement. It settled at
$79.30, down $2.01, having reached $83.05 after falling to $75.71, the lowest since September 2010.
(Additional reporting by Chuck Mikolajczak; Editing by Dan Grebler)

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