Fed bond purchases drive down interest rates to spur recovery, boosting equities in the process, and talk of their dismantling had watered down stock prices in the past by fanning uncertainty over how equities will perform without a monetary crutch.
At the close of U.S. trading, the Dow Jones Industrial Average rose 1.62%, the S&P 500 index rose 1.66%, while the Nasdaq Composite index rose 1.15%.
The Federal Reserve on Wednesday left its key benchmark lending target, the fed funds rate, unchanged at 0.0-0.25% but said it was cutting the amount of Treasury holdings and mortgage debt it buys from banks each month to USD75 billion from USD85 billion.
However, the Fed said overall monetary policy, including interest rates at rock-bottom levels, will stay accommodative until the unemployment rate dips below 6.5%, a figure previously seen as the threshold at which the U.S. central bank would rethink policy.
The Fed added it could adjust its asset-purchasing program should recovery gain steam or deteriorate.
"If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings," the Fed's policy statement said.
"However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases," the Fed added.
"The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5% percent, especially if projected inflation continues to run below the Committee's 2% longer-run goal," the Fed said.
Stocks shot up on the notion that a decision to taper signifies Fed believe that the labor market is improving, which will ultimately improve corporate fundamentals all while interest rates will remain at 0.0%-0.25% for longer than once expected.
Elsewhere, the Census Bureau reported earlier that U.S. housing starts rose to 1.09 million units in November from 890,000 in October, beating consensus forecasts for an increase to 950,000 units.
Building permits in the U.S. fell 3.1% to 1.01 million units in November, from 1.04 million units the previous month.
Still, analysts were expecting building permits to drop 4.7% last month.
Leading Dow Jones Industrial Average performers included 3M, up 3.35%, Exxon Mobil, up 3.13%, and JPMorgan Chase, up 2.71%.
The Dow Jones Industrial Average's worst performers included Boeing, down 0.35%, Microsoft, which was up 0.04%, and Cisco, up 0.43%.
European indices, meanwhile, finished higher.
After the close of European trade, the EURO STOXX 50 rose 1.04%, France's CAC 40 rose 1.00%, while Germany's DAX 30 rose 1.06%. Meanwhile, in the U.K. the FTSE 100 finished up 0.09%.
On Thursday, the U.S. is to publish data on existing home sales, manufacturing activity in the Philadelphia region and initial jobless claims.
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