Dow soars 400 points in wild session (ext)

NEW YORK (CNNMoney) -- U.S. stocks ended a gut-wrenching session with huge gains -- erasing a big chunk of the prior session's steep losses -- after the Federal Reserve said it will keep interest rates exceptionally low until 2013.

The Dow Jones industrial average (INDU) rallied 430 points, or 4%. The S&P 500 (SPX) added 53 points, or 4.7%; and the Nasdaq (COMP) gained 125 points, or 5.3%.

Immediately following the Fed's statement, the major indexes all briefly slid into the red -- with the Dow dropping more than 200 points. The Dow fluctuated by more than 600 points during Tuesday's session.

In its latest monetary policy statement, the Federal Reserve left key interest rates unchanged, saying that deterioration in the labor market and slower-than-expected economic growth will require the central bank to keep rates "exceptionally low" until the middle of 2013.

A survey of investors conducted by investment firm Nomura before the Fed's statement showed that 22% of market participants had been looking for the Fed to announce more quantitative easing to help prop up the economy.

"It's hard to know what this means and how we should react," said Stephen Leeb, president of Leeb Capital Management. "It's disappointing they didn't announce further Treasury repurchases, but they did announce that rates will stay low for two years -- which is a big deal."

Knowing that rates will stay low for at least two years adds certainty to an otherwise uncertain economic environment, said Leeb.

"It means business owners can hire employees, and people can take out mortgages without having to worry about a spike in short-term interest rates," he said.

So given those sharp declines, it was almost inevitable that markets would ultimately end higher Tuesday, said Sal Arnuk, co-founder of Themis Trading. Since 1927, there have been 31 one-day declines like the 7% drop in the S&P 500 seen Monday, he said. And of those instances, the S&P turned positive the next day 79% of the time.

But that doesn't mean investors aren't still rattled by the struggling U.S. economy and the European debt crisis.

"I've still got my helmet on," Lee Smith, vice president of Cozad Asset Management said. "The sell-off yesterday was overdone, so I'm starting to dip one foot back in the market -- but confidence is so weak right now, I don't have both feet back in yet."

The dollar was lower against the euro and Japanese yen, but rose versus the British pound.

Oil for September delivery slid $2.01 to settle at $79.30 a barrel.

Gold futures for December delivery gained $29.80 to settle at $1,743 an ounce. Earlier, gold prices hit a record intraday high of $1,782.50 an ounce.