Investor sentiment got a lift from data showing the overall U.S. Consumer Price Index rose less than expected in January.
New York Federal Reserve Bank President William Dudley also helped calm investors a day after the Fed's move, saying the Fed's pledge to keep benchmark interest rates ultra-low for an extended period is still very much in place.
The discount rate increase, announced after the close on Thursday, had signaled to some investors that the U.S. central bank may be starting to retreat from its easy money policy.
If the Fed thought it was necessary to raise interest rates to remove some of the accommodation, that should be taken as good news because it would suggest a recovering economy and a financial system that can withstand higher interest rates, said Charles Lieberman, chief investment officer of Advisors Capital Management, LLC in Paramus, New Jersey.
This action is really a token. It's not a significant economic event.
Among the Dow's top gainers were industrial shares, including manufacturer United Technologies , up 1 percent at $68.77, and plane maker Boeing , up 1.6 percent at $63.93.
Financial shares, which had started the day lower, moved into positive territory. The S&P financial index <.GSPF> rose 0.5 percent.
The Dow Jones industrial average <.DJI> was up 35.45 points, or 0.34 percent, at 10,428.35. The Standard & Poor's 500 Index <.SPX> was up 4.66 points, or 0.42 percent, at 1,111.41. The Nasdaq Composite Index <.IXIC> was up 6.70 points, or 0.30 percent, at 2,248.41.
Near-zero interest rates have been a relief for investors, who have put more money into risky but higher-yielding investments such as equities and commodities.
On the Nasdaq, Dell Inc shares fell 6.8 percent to $13.45, a day after the company reported quarterly gross margin that missed Wall Street's expectations.
Also on the corporate front, U.S. oilfield services leader Schlumberger Ltd shares fell 3.6 percent to $63.45 after a Wall Street Journal report said the company is in advanced talks to buy rival Smith International Inc . Smith International shot up 13.3 percent to $37.80.
(Editing by Jan Paschal)