Stocks rise as Bernanke offers some reassurance

NEW YORK (AP) — Federal Reserve Chairman Ben Bernanke has given Wall Street a double dose of reassurance.

Bernanke told Congress on Tuesday the recession might end this year, and that regulators aren’t planning to nationalize banks. The news alleviated some of investors’ worries about the economy and the banking industry, and lifted the Dow Jones industrial average and Standard & Poor’s 500 index off their lowest levels since 1997.

And investors were hopeful that Tuesday night, President Barack Obama would provide specifics about how he plans to stabilize the financial system and further stimulate the economy. Anticipation of his remarks helped drive beaten-down financial shares up sharply.

“There’s growing optimism that Obama can deliver the details that the market is so desperately looking for in his speech,” said Ryan Larson, senior equity trader at Voyageur Asset Management. If it gets those details, he added, the market’s upward momentum could continue.

Stocks remain on shaky ground, however. Bernanke may have helped stem the market’s slide Tuesday, but the market also found stability from temporary technical factors: bargain-hunting, the unwinding of short bets, and selling exhaustion after six straight down days for the S&P 500.

And though it appears the government is trying to quash the notion of bank nationalization, the Obama administration still has not addressed how exactly it will repair the banking system. The nation’s financial system remains “zombie-like,” said Nick Kalivas, vice president of financial research at the brokerage MF Global.

“We had an up day today, but nothing has really changed on that front,” Kalivas said. “If nothing is articulated on that tonight, we’re moving to the downside again.”

The continued focus on the stability of the financial system comes a day after the government moved closer to dramatically expanding its ownership stakes in the nation’s banks, including Citigroup Inc. The Treasury Department, the Fed and other banking regulators said Monday they could convert the government’s stock in the banks from preferred shares to common shares.

According to preliminary calculations, the Dow rose 236.16, or 3.32 percent, to 7,350.94. On Monday, the major indexes tumbled more than 3 percent, including the Dow, which fell 251 points. It was the lowest close for the blue chips since May 7, 1997.

Broader stock indicators also rebounded Tuesday. The S&P 500 index rose 29.81, or 4.01 percent, to 773.14. On Monday, it logged its lowest finish since April 11, 1997.

The Nasdaq composite index rose 54.11, or 3.90 percent, Tuesday to 1,441.83.

The Russell 2000 index of smaller companies rose 17.90, or 4.54 percent, to 412.48.

Advancing issues outnumbered decliners by about 6 to 1 on the New York Stock Exchange, where volume amounted to 1.84 billion shares.

In his semiannual report to the Senate Banking Committee, Bernanke predicted the economy is likely to keep contracting in the first six months of 2009, but that “there is a reasonable prospect” the recession will end this year.

He warned that a recovery will require getting credit and financial markets to operate normally, and that the government must continue working with ailing banks to bring them back to profitability. To the market’s relief, though, the Fed chief said formally nationalizing the banks “just isn’t necessary.”