NEW YORK, May 5 — US stocks ended sharply higher on Wednesday after the Federal Reserve delivered a widely expected interest-rate hike, and the S&P 500 recorded its biggest one-day percentage gain in nearly a year.

Stocks initially see-sawed after the announcement, then the indexes strengthened. The S&P 500's advance of almost 3 per cent was the strongest since May 18, 2020.

The Federal Reserve on Wednesday raised its benchmark overnight interest rate by half a percentage point and said it would begin shrinking the central bank's US$9 trillion asset portfolio next month in an effort to further lower inflation.

The US central bank set its target federal funds rate to a range between 0.75 per cent and 1 per cent in a unanimous decision, with further rises in borrowing costs of perhaps similar magnitude likely to follow.

“It’s clear that they (the Fed) understand the need to contain the soaring prices,” said Greg Bassuk, chief executive at AXS Investments in Port Chester, New York.

“Even as the Fed gets more aggressive with rate hikes, we still need to grapple with the geopolitical tensions, the ongoing Covid issues as well as these wide-ranging corporate earnings results. So not withstanding the Fed move, we think we'll still see some more volatility ahead.”

Investors watched Powell's news conference for fresh clues on how far and how fast the central bank is prepared to go in an effort to bring down decades-high inflation.

The Dow Jones Industrial Average .DJI rose 932.27 points, or 2.81 per cent, to 34,061.06, the S&P 500 .SPX gained 124.69 points, or 2.99 per cent, to 4,300.17 and the Nasdaq Composite .IXIC added 401.10 points, or 3.19 per cent, to 12,964.86.

Concerns about a hit to economic growth due to a hawkish Fed, mixed earnings from some big growth companies, the conflict in Ukraine and pandemic-related lockdowns in China have hammered Wall Street recently, with richly valued growth stocks bearing the brunt of the sell-off.

Two separate sets of data showed private employers hired the fewest workers in two years last month, while expansion in the services sector unexpectedly lost some momentum in April.

Lyft Inc LYFT.O shares plummeted 30 per cent amid concerns about the company's ridership and spending. The ride-hailing company reported first-quarter revenue of US$875 million, a 44 per cent increase over the previous year, while the number of active riders missed analyst expectations.

Starbucks Corp SBUX.O rose 9.9 per cent after the coffee chain saw quarterly comparable sales grow 12 per cent in North America.

Livent Corp LTHM.N gained 30.2 per cent after it posted a better-than-expected quarterly profit and bolstered its 2022 revenue outlook on higher demand for lithium used in electric vehicle batteries.

All 11 of the major S&P sectors rose, with energy .SPNY leading the gains. O/R

Bank stocks climbed 3.5 per cent after US Treasury two-year yields, the most sensitive to the Federal Reserve's interest rate outlook, soared to their highest since November 2018. The benchmark 10-year yield topped 3 per cent for a third consecutive day. US/

Volume on US exchanges was 13.46 billion shares, compared with the 11.97 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 3.98-to-1 ratio; on Nasdaq, a 2.39-to-1 ratio favored advancers.

The S&P 500 posted two new 52-week highs and 37 new lows; the Nasdaq Composite recorded 28 new highs and 360 new lows. — Reuters