U.S. stocks rally on Bernanke comments, oil jumps

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.

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