Stocks jump as Bernanke sees rates remaining low Stocks rebounded from a two-day slide Wednesday as Federal Reserve Chairman Ben Bernanke told Congress that low interest rates are still needed to support the economy.
Bernanke sounded an upbeat note about a recovery as part of his regular semi-annual report to Congress on the economy. He told the House Financial Services Committee he still expects interest rates will remain low for an extended period. Investors want to see low-cost borrowing continue to help revive the economy.
The Dow Jones industrial average jumped 100 points, erasing a 101-point drop from Tuesday.
At the same time, a disappointing report on new home sales brought the latest reminder that a recovery in the economy will be difficult even with government aid.
The Commerce Department said sales of new homes fell to a record low in January. Economists had been expecting an increase. The government said that new home sales fell 11.2 percent last month to a seasonally adjusted annual sales rate of 309,000 units. That's the lowest level on a record that goes back nearly 50 years.
It was the third straight monthly drop.
Housing has been a big concern for investors who this week have been worrying about consumer spending. A surprising drop in consumer confidence reminded investors of the fragility of the economic recovery and sent stocks sliding on Tuesday. The market also posted modest losses on Monday.
In late morning trading, the Dow rose 103.09, or 1 percent, to 10,385.50. The broader Standard & Poor's 500 index rose 10.51, or 1 percent, to 1,105.11, and the Nasdaq composite index rose 26.19, or 1.2 percent, to 2,239.63.
Bond prices mostly rose, pushing yields lower. The yield on the benchmark 10-year Treasury note fell to 3.68 percent from 3.69 percent late Tuesday.
The dollar fell against other major currencies following Bernanke's remarks because low interest rates make the currency a less attractive investment. The drop in the dollar lifted prices of commodities, which become cheaper for foreign buyers when the dollar falls. The gain in commodity prices, in turn, lifted energy and materials stocks.
Crude oil rose $1.16 to $80.02 per barrel on the New York Mercantile Exchange. Gold prices fell.
Investors keep watch over interest rates because low-cost cash has been one of the biggest drivers of the stock market's rebound since March 2009. By keeping rates low, the Fed makes it cheaper for businesses and consumers to borrow and help stimulate the economy. If it holds rates too low for too long, however, the Fed risks sparking inflation.
Bernanke's testimony follows the central bank's move last week to boost the rate it charges banks for short-term loans. The increase had been expected, though investors were initially concerned that the increase signaled the Fed would soon start raising other rates.
Three stocks rose for every one that fell on the New York Stock Exchange, where volume came to 328.1 million shares, compared with 337.3 million shares traded at the same point Tuesday.
The Russell 2000 index of smaller companies 6.27, or 1 percent, to 631.34.
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