The Federal Reserve raised its overnight lending rate between banks by a quarter-point to 5.25% and said further increases depend on the prospects for growth and inflation.

“The committee judges that some inflation risks remain,” the Federal Open Market Committee said in a statement after a two-day meeting in Washington. “The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.”

Chairman Ben Bernanke is trying to contain a jump in prices without choking the economic expansion. The housing market is softening with applications for mortgages dropping to the lowest in more than two years and analysts predict growth will slow from last quarter’s annual pace of 5.6%.

“The Fed will leave its door open for further actions, but I think they are probably done,” a former Fed governor, Robert Heller, said in an interview after the decision.

The dollar fell by the most in four weeks against the yen and Treasury notes jumped. Stocks surged as traders scaled back bets on the likelihood the Fed will lift rates again in August, when policy makers next meet.

The committee said “recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year,” the statement said. “Readings on core inflation have been elevated in recent months. Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained.”

The FOMC’s unanimous decision lifted the overnight lending rate between banks by a 17th straight quarter point, from 5%, set at the last meeting on May 10.

“The fact that they indicated that inflation expectations are still contained is important,” a former president of the Richmond Fed, J.Alfred Broaddus, said in an interview. “It would tend to reduce the probability of further moves, but I think the key thing is it’s going to be data-dependent.”

The streak of rate increases is the Fed’s longest since the 1970s.The rate was 1% when policy makers started the current cycle in June 2004. Traders placed about a 65% chance of an increase in August, based on the price of futures tied to the fed funds rate at the Chicago Board of Trade, down from 83% yesterday.

American consumer prices climbed at an annual rate of 5.2% in the first five months of the year, up from 3.6% at the same period in 2005.Minus food and energy, so- called core prices rose at an annual rate of 3.1%,from 2.4% increase in the first five months of last year.

American stocks had the biggest rally since 2003 yesterday after the Federal Reserve said economic growth is slowing, giving the central bank some leeway to pause after raising interest rates the past two years.

Goldman Sachs Group Inc., the biggest American securities firm by market value, and other financial companies led the gains as bond yields fell. Alcoa Inc. and Phelps Dodge Corp. climbed as the central bank’s comments eased concern that higher borrowing costs will curb global demand for commodities.

The Standard & Poor’s 500 Index jumped 26.87, or 2.2%, to 1272.87, the largest advance since October 2003. The Dow Jones Industrial Average added 217.24, or 2% , to 11,190.80, for the biggest single-day point gain in more than three years. All 30 members gained. The Nasdaq Composite Index increased 62.54, or 3%, to 2174.38, for its biggest surge since March 2004.

More than 17 stocks rose for every one that fell on the New York Stock Exchange. The advance-decline ratio for all Big Board-listed securities was 11 to 2, the highest in nine years. About 1.88 billion shares changed hands on the NYSE, 9.8 percent more than the threemonth daily average.

Concern that the Fed will go too far and derail growth with higher rates to quell inflation had sent the S&P 500 down as much as 5.5% in the second quarter. That would have been the worst quarterly performance since the period ended in September 2002. Yesterday’s gain cut the loss to 1.7%.

Stocks began their rally in the morning on a report that showed gross domestic product grew in the first quarter at the fastest pace since 2003, suggesting the economy so far has weathered higher borrowing costs.