The Fed said the move was made to make borrowing more readily available. The news countered an early Labor Department report that first-time jobless benefit claims rose by 15,000 in the week.
Initial claims for unemployment benefits rose to 382,000, the department said.
The Department of Labor Statistics said U.S. producer prices rose 1.7 percent in August, the largest monthly gain since June 2009.
By close of trading on Wall Street, the Dow Jones industrial average gained 206.51 points, or 1.55 percent, to 13,539.86. The tech-heavy Nasdaq Composite index added 41.52 points, or 1.33 percent, to 3,155.83. The Standard and Poor's 500 added 23.43 points, or 1.63 percent, to 1,459.99.
On the New York Stock Exchange, 2,398 stocks advanced and 650 declined on a volume of 4.3 billion shares traded.
The benchmark 10-year treasury rose 11/32 to yield 1.726 percent.
The euro rose to $1.2986 from Wednesday's $1.2899. The U.S. dollar fell to 77.58 yen from 77.85 yen.
In Tokyo, the Nikkei 255 index added 0.39 percent, 35.19 points, to 8,995.15.
In London, the FTSE 100 index added 0.69 percent, 39.80, to 5,821.88.