New York - US stocks posted strong gains on Tuesday after the Federal Reserve kept interest rates unchanged and the price of oil continued a steady decline from last month's record highs.

The Fed said it was keeping its benchmark federal funds rate unchanged at 2 per cent as the US central bank navigates the twin dangers of sluggish growth and high inflation.

Crude oil fell 2.81 dollars to a three-month low of 118.60 dollars per barrel in New York trading. A Reuters Jeffries/CRB Index of commodity prices dropped 10 per cent in July as oil, copper and wheat have all retreated from record highs.

The Fed said it expected inflation pressures to ease later this year but warned of a "highly uncertain" outlook, while growth would improve as the drastic rate cuts of past months continued to have an effect.

The blue-chip Dow Jones Industrial Average surged 331.62 points, or 2.94 per cent, to 11,615.77. The broader Standard & Poor's 500 Index jumped 35.87 points, or 2.87 per cent, to 1,284.88. The technology-heavy Nasdaq Composite Index gained 64.27 points, or 2.81 per cent, to 2,349.83.

The dollar rose to 64.70 euro cents from 64.20 euro cents on Monday and edged up to 108.33 Japanese yen from 108.26 yen.

Gold futures fell 21.80 dollars to 886.10 dollars per fine ounce. (dpa)