Stocks rose on Friday as investors took the Federal Reserve's surprise increase in the discount rate as further evidence the economy is strengthening.

Investor sentiment got a lift from data showing the U.S. Consumer Price Index, a gauge of inflation, rose less than expected in January.

New York Federal Reserve Bank President William Dudley also helped calm investors a day after the Fed's rate action, 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. The Fed made no change in its benchmark fed funds rate, which it has held near zero percent and which has promoted investment activity.

By Friday investors seemed to view the rise in the discount rate, which the Fed charges banks on emergency loans, with less concern than a day earlier.

It's a token signal the Fed is watching what's going on, said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. It was highly predictable.

Charles Lieberman, chief investment officer of Advisors Capital Management in Paramus, New Jersey, said the Fed action would suggest a recovering economy, and a financial system that can withstand higher interest rates.

The Dow Jones industrial average <.DJI> was up 28.04 points, or 0.27 percent, at 10,420.94. The Standard & Poor's 500 Index <.SPX> was up 3.94 points, or 0.36 percent, at 1,110.69. The Nasdaq Composite Index <.IXIC> was up 5.82 points, or 0.26 percent, at 2,247.53.

Among the Dow's top gainers were industrial shares, including manufacturer United Technologies , up 0.7 percent at $68.60, and plane maker Boeing , up 1.9 percent at $64.11.

Financial shares, which had started the day lower, moved into positive territory. The S&P financial index <.GSPF> rose 0.6 percent.

On the Nasdaq, Dell Inc shares fell 6.7 percent to $13.47, 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 3.5 percent to $63.50 after a Wall Street Journal report said the company is in advanced talks to buy rival Smith International Inc . Smith International shot up 13.5 percent to $37.85.

(Editing by Kenneth Barry)