Stocks turn higher

NEW YORK (CNNMoney.com) -- Stocks rose near midday Wednesday, after a choppy morning influenced by weak reports on housing and manufactured goods, the dollar at a record low versus the euro and Fed Chairman Bernanke's congressional testimony.

The Dow Jones industrial average (INDU), the broader Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all gained almost 2 hours into the session.

Freddie Mac (FRE, Fortune 500) and Fannie Mae (FNM) shares jumped on news that the mortgage lenders will see the restrictions on the size of their portfolios removed, as of March 1, freeing up billions of dollars for investing in the housing market.

That news, released around 10:30 a.m. ET, gave a lift to the financial sector and helped the broader stock market erase early losses, sparked by the morning economic reports.

Investors were also focusing on Chairman Bernanke's testimony before the House Financial Services Committee, on the first day of his semi-annual Congressional testimony on monetary policy.

In prepared comments, Bernanke said that the problems in housing, the labor market and the credit markets could pose a "downside risk" to the Fed's current economic outlook. He also said that inflationary pressures are higher than they were in recent months.

Nonetheless, he indicated that the Fed is likely to continue cutting interest rates in the near term.

The Fed, meeting March 18, is expected to cut the fed funds rate, a key short-term interest rate, by a half-percentage point. The central bank has been cutting interest rates steadily since September in an attempt to protect the economy from falling into a recession amid the housing and credit market crises.

Economic news. Durable goods orders slumped by 5.3% in January, due to the slowing economy. It was the biggest plunge in five months and worse than the 4% drop economists were expecting. Orders rose 4.3% in December.

Another report showed January new home sales fell to a 588,000 unit annual rate from a revised 605,000 unit annualized rate in the previous month. Economists thought it would fall to a 600,000 unit annual rate.

Stocks rose for the last three sessions as investors have welcomed some upbeat company news and shrugged off more signs of a slowing economy and rising inflation.

Stocks initially slipped Wednesday, before recovering and moving higher near midday.

Corporate news. Separately, Fannie Mae reported a much steeper-than-expected quarterly loss, due to rising home-loan delinquencies, ahead of the announcement about the lifting of the portfolio caps.

The European Union fined Microsoft (MSFT, Fortune 500) a record $1.3 billion for charging rivals too much to make compatible software. The software leader said that the fines were about past issues and the company is now working to make its products more accessible.

Market breadth was positive. On the New York Stock Exchange, winners beat losers 4 to 3 on volume of 470 million shares. On the Nasdaq, advancers topped decliners 7 to 6 as 740 million shares changed hands.

Other markets. U.S. light crude oil for April delivery fell 87 cents to $100.01 a barrel on the New York Mercantile Exchange after a government report showed inventories rising for the seventh straight week. Earlier, oil had hit an electronic trading record of $102.08.

COMEX gold for April delivery rose $11.60 to $960.50 an ounce.

Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.88% from 3.86% late Thursday. Bond prices and yields move in opposite directions.

In currency trading, the dollar touched an all-time low versus the euro and also declined against the yen.