* Indexes up: Dow 1.3 pct, S&P 1.2 pct, Nasdaq 0.9 pct
* Oil rallies, energy shares gain
* Fed removes "patient" from its language (Updates to close)
By Caroline Valetkevitch
NEW YORK, March 18 (Reuters) - U.S. stocks rallied on Wednesday after the Federal Reserve suggested a less aggressive timeline for raising interest rates even as it opened the door for the first hike in almost a decade.
The Fed dropped its pledge to be "patient" in deciding when to begin raising rates, but it cut its interest-rate projections over the next few years and downgraded its outlook for the U.S. economy.
While the statement put a June rate increase on the table, it also allowed the Fed flexibility to move later, stressing that any decision would depend on incoming data.
All 10 S&P sectors were higher on the day, with the S&P 500 ending within 1 percent of its record close set earlier this month. Stocks had been trading lower ahead of the Fed announcement.
"By lowering its expectations for the pace at which rates will rise, it sent a clear signal that it is in no hurry to push rates higher as it views the economy as growing only moderately," said David Joy, chief market strategist at Ameriprise Financial in Boston.
Energy shares surged as crude oil rallied and the dollar dropped. The S&P energy index added 2.9 percent, leading gains in the S&P 500, followed by the utility index, up 2.7 percent. Utilities tend to do better in a low interest rate environment.
The Dow Jones industrial average rose 227.11 points, or 1.27 percent, to 18,076.19, the S&P 500 gained 25.14 points, or 1.21 percent, to 2,099.42 and the Nasdaq Composite added 45.39 points, or 0.92 percent, to 4,982.83.
U.S. short-term interest-rate futures contracts jumped, pushing expectations for the first rate hike farther into the future. Traders now see a 60 percent chance that the first Fed rate hike will come in October, based on CME FedWatch.
Among the day's gainers, Oracle rose 2.9 percent to $44.13 a day after it posted flat third-quarter revenue and slightly lower profit. However, it raised its quarterly dividend 25 percent to 15 cents a share.
A lock-up period in Alibaba shares expired Wednesday, with a larger one expiring in September. The stock hit a high of $120 in November and closed Tuesday at $84.50, about 24 percent above its IPO price. Shares ended up 0.1 percent at $84.59.
Volume was high. About 7.9 billion shares changed hands on U.S. exchanges, well above the 6.6 billion average for the month to date, according to BATS Global Markets.
Advancing issues outnumbered decliners on the NYSE by 2,549 to 546, for a 4.67-to-1 ratio; on the Nasdaq, 1,692 issues rose and 1,030 fell, for a 1.64-to-1 ratio.
The S&P 500 posted 74 new 52-week highs and 7 new lows; the Nasdaq Composite recorded 157 new highs and 48 new lows.
Additional reporting by Herbert Lash and Ann Saphir; Editing by Nick Zieminski