NEW YORK, (Reuters) – U.S. stocks jumped yesterday, a day after sliding to a 12-year low, and the appeal of safe-haven assets waned after Federal Reserve Chairman Ben Bernanke signaled the nationalization of major banks was not planned.
Bernanke expressed faith that the banking system could be stabilized and that authorities were on the right path in taking time to fully diagnose the health of top U.S. banks.
“If I thought the banks were irrevocably damaged, I would have a different view, but I do believe our major banks have significant franchise values,” Bernanke said in testimony before the Senate Banking Committee in Washington.
The heavily battered S&P 500 financial index surged almost 12 percent and bonds slipped as the stock surge took the gleam off the risk-averse allure of government debt.
Oil prices rose 4 percent, tracking Wall Street’s bounce. U.S. gold futures fell 2.6 percent on options-related selling and profit taking triggered by Bernanke’s comments that inflation pressures had receded.
Widespread doubt about government plans for U.S. banks had dragged the Dow and the S&P 500 to 1997 lows on Monday. The S&P 500 recouped the previous day’s losses, but not the Dow.
The Dow Jones industrial average closed up 236.16 points, or 3.32 percent, at 7,350.94. The Standard & Poor’s 500 Index rose 29.81 points, or 4.01 percent, to 773.14. The Nasdaq Composite Index added 54.11 points, or 3.90 percent, to 1,441.83.
European stocks fell for a third straight session as fears persisted about the health of banking stocks and the severity of the U.S. recession after more dismal economic data.
The FTSEurofirst 300 index of top European shares fell 1.4 percent to end at 719.38 points, its lowest close since March 2003.
The broad STOXX 600 index fell 1.4 percent to 172.86 points, led lower by drug stocks.
“The markets are disenchanted by the policy-makers’ attempts to stabilize the financial system,” said Mike Lenhoff, chief strategist and head of research at Brewin Dolphin Securities in London.
While Bernanke’s comments sparked the U.S. stock rally, he warned that government failure to restore financial stability could extend the U.S. recession into 2010, which helped to strengthen the U.S. dollar.