NEW YORK (AP) - A more upbeat Federal Reserve is reassuring investors that they have been making the right bets.

Stocks bounded higher yesterday after the central bank said the economy appears to be "leveling out" rather than simply shrinking at a slower rate. The Fed's more positive take on the economy compared with its assessment in June was not surprising but it still bolstered hopes that the economy is in fact rebounding.

Yesterday's advance restarted the market's summer rally after a pause on Monday and Tuesday. Major market indexes jumped more than one percent, including the Dow Jones industrial average, which jumped 120 points.

Financial and technology shares posted some of the strongest gains after ratings upgrades and profit reports provided fresh evidence of a recovery. The stock market's advance was itself adding to bank and insurance stock gains - its climb means their investment portfolios are surging in value.

Investors drew reassurance from Fed policymakers' comments. The central bank left interest rates unchanged, as expected, following a two-day policy meeting.

"They did really endorse the fact that we're moving into recovery, not searching for the bottom," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

Stocks have been rallying much of the past four weeks on expectations that the economy is strengthening.

The Fed also said it would slow the pace of its program to buy $300 billion worth of Treasury securities so that it will close at the end of October, rather than September as originally intended. The central bank has bought $253 billion of the securities so far. The program is designed to reduce rates on mortgages and other consumer debt.

"The fact that they are going to wind down the Treasury purchases I think leaves the clear impression that they are quite satisfied with the progress we are making in the recovery," Mr. McCain said.

But some analysts are skeptical that the market can maintain its climb even with the Fed's more optimistic words. The S&P 500 index is up 14 percent in little more than a month and 48.7 percent since it fell to a 12-year low in early March.

"It looks like a pretty sharp rise to me to have a lot of sustainability," said Dan Cook, senior market analyst at IG Markets in Chicago.

According to preliminary calculations, the Dow rose 120.16, or 1.3 percent, to 9,361.61. The Standard & Poor's 500 index rose 11.46, or 1.2 percent, to 1,005.81, while the Nasdaq composite index gained 28.99, or 1.5 percent, to 1,998.72.

Rising stocks outpaced those that fell five-to-two on the New York Stock Exchange, where volume came to a light 1.2 billion shares, flat with Tuesday. Light volume can skew price moves but is typical of late summer when many traders take vacations.

The gains came a day after the market posted its biggest loss in five weeks. The Dow fell 97 points as investors worried about the health of banks.

Investors found encouragement, however, from a range of industries.

Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Ill., said quarterly results from luxury homebuilder Toll Brothers and retailer Macy's Inc. could be signaling that consumption is increasing. That is key to a recovery because consumer spending accounts for more than two-thirds of US economic activity.

Homebuilders jumped after Toll Brothers said three percent more homebuyers signed contracts in its fiscal third quarter, the first annual increase in four years.

Toll's statement that many of its markets are improving boosted confidence because analysts point to unemployment and housing as two of the biggest obstacles to a rebound. Toll jumped $2.94, or 14.4 percent, to $23.42.

Macy's reported a better-than-expected second-quarter profit and cited cost-cuts in raising its full-year earnings forecast. Macy's rose 93 cents, or 6 percent, to $16.40.

Insurers rose after S&P raised its credit outlook for Travelers Cos. The commercial and personal property insurer advanced $1.50, or 3.3 percent, to $46.43. It was the biggest gainer among the 30 stocks that make up the Dow industrials.

Tech stocks rose after Applied Materials Inc.'s fiscal third-quarter results topped analysts' expectations. The maker of equipment for manufacturing semiconductors rose 44 cents, or 3.3 percent, to $13.66.

Meanwhile, bond prices were mixed after an auction of $23 billion in 10-year Treasury notes saw demand in line with recent levels but down from last month.