By Caroline Valetkevitch

NEW YORK (Reuters) – U.S. stocks rallied on Wednesday after the Federal Reserve cut its expected pace of growth and inflation, suggesting a less aggressive timeline for raising interest rates even as it opened the door for the first rate hike in almost a decade.

The Fed in its statement following a two-day meeting dropped its pledge to be “patient” in deciding when to begin raising rates, moving a step closer toward hiking rates, but made it clear that it needs to see more gains in the labor market and price growth to raise rates.

While the statement put a June rate increase on the table, it also allowed the Fed enough flexibility to move later in the year, stressing that any decision would depend on incoming data.

All 10 S&P sectors were higher. At its session high, the S&P 500 came within 0.5 percent of its record close set earlier this month.

“By eliminating ‘patient’ from its guidance it removed an artificial stricture on its flexibility, creating room for the data to dictate its future actions,” said David Joy, chief market strategist at Ameriprise Financial in Boston.

“At the same time, by lowering its expectations for the pace at which rates will rise, it sent a clear signal that it is in no hurry to push rates higher as it views the economy as growing only moderately.”

Energy shares surged as crude oil rallied and the dollar fell following the Fed statement. The S&P energy index (.SPNY) was up 3.4 percent, leading gains in the S&P 500. The utility index (.SPLRCU), which tends to do better in a low interest rate environment, jumped 3.1 percent.

At 3:13 p.m., the Dow Jones industrial average (.DJI) rose 226.75 points, or 1.27 percent, to 18,075.83, the S&P 500 (.SPX) gained 29.8 points, or 1.44 percent, to 2,104.08 and the Nasdaq Composite (.IXIC) added 57.87 points, or 1.17 percent, to 4,995.31.

Oracle (ORCL.N) rose 3.6 percent to $44.40 a day after it posted flat third-quarter revenue and slightly lower profit. However, it raised its quarterly dividend 25 percent to 15 cents a share.

(Additional reporting by Herbert Lash; Editing by Bernadette Baum, Cynthia Osterman and Nick Zieminski)