* U.S. stocks extend gains
* BOJ targets long-term yields
* Fed signals could tighten policy by year end (Updates to after Fed statement)
By Caroline Valetkevitch
NEW YORK, Sept 21 (Reuters) - U.S. stocks gained and the dollar index eased on Wednesday after the U.S. Federal Reserve left interest rates unchanged but signaled it could tighten monetary policy by year end.
U.S. economic activity had picked up and job gains were "solid" in recent months, the U.S. central bank said in a statement following the two-day policy meeting. Fed has held its target rate for overnight lending between banks in a range of 0.25 percent to 0.50 percent since December, when it raised borrowing costs for the first time in nearly a decade.
U.S. Treasury yields briefly extended their rise after the statement. The two-year yield US2YT=RR was last at 0.782 percent, up 0.4 basis point from late on Tuesday. as expected. I think the (stock) market will view it as good news. The body language makes it sound like they're warming people up for December," said Stephen Massocca, chief investment officer, Wedbush Equity Management in San Francisco.
Earlier, the Bank of Japan overhauled its monetary policy to target interest rates.
The BOJ maintained its 0.1 percent negative interest rate, but abandoned its base money target. Instead, it set a "yield curve control" under which it will buy long-term government bonds to keep 10-year bond yields around their current zero percent. Dow Jones industrial average .DJI was up 48.01 points, or 0.26 percent, to 18,177.97, the S&P 500 .SPX had gained 8.52 points, or 0.4 percent, to 2,148.28 and the Nasdaq Composite .IXIC had added 19.20 points, or 0.37 percent, to 5,260.55. all-country world stock index .MIWD00000PUS was up 0.6 percent, while Europe's STOXX 600 .STOXX closed up 0.4 percent, helped by euro zone banking shares. dollar index .DXY eased further following the decision, hitting a five-day low of 95.515 after the Fed decision. It was last down 0.2 percent.
U.S. oil prices CLc1 stayed higher after the decision, settling up 2.9 percent.