The Standard & Poor's 500 and the Nasdaq composite index stretched to new three-year highs yesterday as the Federal Reserve issued a widely expected interest-rate increase...

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NEW YORK — The Standard & Poor’s 500 and the Nasdaq composite index stretched to new three-year highs yesterday as the Federal Reserve issued a widely expected interest-rate increase.

The Dow Jones industrial average closed up 38.13 at 10,676.45, extending Monday’s 95-point gain for its best close since March 1.

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Microsoft, one of the 30 Dow stocks, slipped 2 cents to close at $27.23 a share. Boeing, also a Dow stock, was off 3 cents at $52.64.

Broader stock indicators also strode higher, putting in their best performances since the Sept. 11, 2001, terrorist attacks. The S&P 500 gained 4.70 to 1,203.38, a level it hasn’t finished at since Aug. 8, 2001. The Nasdaq rose 11.34 to 2,159.84, its highest close since June 29, 2001.

The Fed’s Open Market Committee raised the nation’s benchmark interest rate by a quarter percentage point to 2.25 percent and released a statement that said low inflationary pressures should allow it to continue tightening rates at a “measured” pace. The language, nearly identical to the Fed’s Nov. 10 statement, was reassuring to investors.

Wall Street had been disappointed earlier in the day by the latest reading of the nation’s trade deficit, which surged to a record $55.5 billion in October. Continued demand for Chinese imports and the high cost of oil contributed to the growing deficit, which was much larger than the $52.4 billion economists had expected. But while the numbers looked bad from a monetary point of view, they showed continued consumer spending, which some took as a bullish sign.

The Fed’s most recent move suggests there is “a green light for further rate increases,” said Hans Olsen, chief investment officer at Bingham Legg Advisers, who thinks the markets are anticipating a series of gradual increases to at least 3 percent next year. In the near term, however, getting 2004’s final rate increase out of the way helped investors focus on other news.

“There seems to be a reawakening of merger-and-acquisition activity, and signs are there that people are continuing to spend at a healthy clip,” Olsen said as rumors swirled about Verizon and Vodafone readying to outbid Nextel Communications in its quest to buy Sprint.

Earlier, The New York Times reported that software security company Symantec was in talks to acquire data-storage firm Veritas for $13 billion, a deal even bigger than Oracle’s acquisition Monday of rival business-software company PeopleSoft for $10.3 billion.