* Fed raises rates as expected; job gains stoke confidence
* Bond yields also fall after Fed decision
* Euro hits session high after Dutch election exit poll (Updates with close of U.S. markets)
By Lewis Krauskopf
NEW YORK, March 15 (Reuters) - U.S. stocks surged on Wednesday, while Treasury yields fell and the dollar weakened, after the Federal Reserve raised interest rates for the second time in three months but did not flag any plan to accelerate the pace of monetary tightening.
The dollar's plunge helped fuel gains in assets denominated in the U.S. currency, including oil and gold.
Investors had widely expected the central bank's rate increase, which was spurred by steady economic growth, strong job gains and confidence that inflation is rising to the Fed's target.
But the Fed's policy-setting committee did not flag any plan to accelerate the pace of monetary tightening. Further rate increases would only be "gradual," the Fed said in its policy statement, with officials sticking to their outlook for two more rate hikes this year and three more in 2018.
"Lower rates, higher equities and a lower dollar all point to this being interpreted as more dovish than what was expected," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.
The Dow Jones Industrial Average rose 112.73 points, or 0.54 percent, to 20,950.1, the S&P 500 gained 19.81 points, or 0.84 percent, to 2,385.26 and the Nasdaq Composite added 43.23 points, or 0.74 percent, to 5,900.05.
Energy shares and defensive sectors such as utilities and real estate led gains.
"Markets are recognizing that while the Federal Reserve will raise interest rates three times this year, there is not the risk that some were afraid of that they would move more aggressively based on what we have now," said Frances Donald, senior economist with Manulife Asset Management in Toronto.
The dollar fell 1.2 percent against a basket of key currencies and hit a five-week low against the euro.
The euro hit a session high after an exit poll showed Dutch Prime Minister Mark Rutte's VVD Party won the most seats in parliamentary elections.
Anti-Islam Party for Freedom of Geert Wilders, which provided the latest test of anti-establishment and anti-EU sentiment, was tied with two other parties at 19 seats apiece in the 150-seat house of representatives, while the VVD won 31 seats, according to the poll.
U.S. two- and three-year yields, which are most vulnerable to Fed policy, fell from multi-year highs touched during morning U.S. trading.
Prices on benchmark 10-year Treasuries rose 27/32 to yield 2.498 percent, from 2.595 percent late on Tuesday.
Oil prices rose after six sessions of declines, with the greenback-denominated commodity extending gains as the dollar weakened.
U.S. crude settled up 2.4 percent at $48.86 a barrel, after touching a three-month low a day earlier. Benchmark Brent settled up 1.8 percent to $51.81 a barrel.
Before the decision, crude had been lifted by a surprise drawdown in U.S. crude inventories and data from the International Energy Agency suggesting OPEC cuts should create a crude deficit in the first half of 2017.
Spot gold gained 1.8 percent.
Earlier, the pan-European STOXX 600 index gained 0.4 percent, helped by energy and basic resource stocks .
Additional reporting by Ann Saphir, Saqib Ahmed and Sinead Carew, Editing by Nick Zieminski