The dollar also struggled to bounce back from a sell-off -- sitting at a three-week low against the yen -- that came in response to comments by Fed chief Jerome Powell suggesting its next super-sized increase could be its last.

However, analysts cautioned that the initial joy, which sent New York's three main indexes soaring, could be short-lived as the global economy continued to face several headwinds and inflation would likely not come down quickly.

As expected, the Fed lifted borrowing costs 75 basis points to a range of 2.25 to 2.5 percent, close to the neutral level it considers neither stimulating nor slowing economic growth.

Forecasts have rates going as high as 3.8 percent in 2023, as the bank tries to control runaway inflation.

There is a growing concern that the sharp rise in rates is bearing down on the world's top economy and could send it into recession.

In his post-meeting comments, however, Powell said he did not consider that was the case, because "there are too many areas of the economy that are performing too well".

He did note that growth was slowing.

Powell added that officials would not give any guidance on their next move, instead taking each decision on a meeting-to-meeting basis.

While he said another "unusually large increase could be appropriate" in September and officials "wouldn't hesitate" to lift by one percentage point, markets took heart from the suggestion that the bank was ready to take its foot off the gas towards the end of the year.

On Wall Street, the Dow and S&P rallied and the Nasdaq soared more than four percent -- its best one-day rise since late 2020 -- as tech firms caught a wave of optimism. The sector is more susceptible to higher rates.

And Asia followed suit, though with more muted gains.

Shanghai, Tokyo, Sydney, Seoul, Singapore, Mumbai, Manila, Jakarta and Wellington were also well in the green.

But Hong Kong dipped as the city's de facto central bank followed the Fed in lifting rates owing to its currency peg.

London, Paris and Frankfurt were up in the morning.

The prospect of a slower pace of rate hikes weighed on the dollar against most other currencies, and on Thursday it hit its lowest level against the yen since July 6.

There was a warning that the positive mood likely will not last, however.

"This market move is the victory of hope over experience," Jeffrey Rosenberg, at BlackRock Inc, told Bloomberg Television. "I'd be a little bit cautious here."

And Citigroup's Andrew Hollenhorst and Veronica Clark added that traders appeared to be misjudging Powell's remarks.

"We read Chair Powell's press conference as more hawkish than the market's interpretation," they said, adding that inflation readings excluding food and energy will "push the Fed to hike more aggressively than they or markets anticipate".

All eyes are now on the release of second-quarter growth data later Thursday. After a 1.6 percent contraction in the previous three months, another negative reading would put the economy into a technical recession.

An expected phone call between US President Joe Biden and his Chinese counterpart Xi Jinping will also be high on the agenda for investors as the world's superpowers try to navigate a period of rising tensions. Updates on US tariffs and Taiwan will be among the main areas of focus.

Oil prices rose after data showed a big drop in US stockpiles, while Powell's comments on the economy eased recession concerns and the weaker dollar made the commodity cheaper for buyers with other currencies.

- Key figures at around 0810 GMT -

Tokyo - Nikkei 225: UP 0.4 percent at 27,815.48 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 20,622.68 (close)

Shanghai - Composite: UP 0.2 percent at 3,282.58 (close)

London - FTSE 100: UP 0.1 percent at 7,353.01

Euro/dollar: DOWN at $1.0200 from $1.0201 late Wednesday

Pound/dollar: UP at $1.2185 from $1.2151

Euro/pound: DOWN at 83.71 pence from 83.85 pence

Dollar/yen: DOWN at 135.60 yen from 136.51 yen

West Texas Intermediate: UP 1.3 percent at $98.48 per barrel

Brent North Sea crude: UP 0.9 percent at $107.57 per barrel

New York - Dow: UP 1.4 percent at 32,197.59 (close)

dan/dva

Dow

BLACKROCK

CITIGROUP