Stocks limp to close after Bernanke

Wall Street loses some ground as Fed chief's cautious economic outlook worries investors.

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By David Goldman, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Stocks teetered then fell after Federal Reserve Chairman Ben Bernanke said a U.S. recession was a possibility in a Congressional hearing Wednesday.

The Dow Jones industrial average (INDU) lost 45 points, or 0.4%. The broader Standard & Poor's 500 index (SPX) dropped 0.2%, and the tech-loaded Nasdaq composite index (COMP) slipped 0.1%.

Wall Street could not hold onto the previous session's strong gains, but overall losses were moderate after perhaps the most cynical economic outlook Bernanke has given as Fed chief.

In testimony before a hearing of the Joint Economic Committee of Congress, Bernanke said he believed the economy is still "slightly growing at the moment," though a U.S. economic recession is possible. He said he expects a continued rise in unemployment, and he noted that the economic outlook has worsened since the Fed's last forecast was released in January.

Bernanke also defended the Fed's role in the fire-sale of embattled Wall Street firm Bear Stearns (BSC, Fortune 500) to JPMorgan Chase (JPM, Fortune 500) last month, saying he took the actions to provide a smooth functioning of financial markets needed by all Americans.

Though stocks traded higher shortly after the morning hearing, Wall Street fell back a bit in the afternoon.

"All things factored in, we [held] on to yesterday's gains, which is encouraging," said Avalon Partners chief market economist Peter Cardillo.

"Bernanke's testimony puts us back in a waiting mode, and investors will look to further economic data and upcoming earnings reports before they decide what to do next," he added.

Employment reports. In a survey of private sector employers released early Wednesday, businesses added jobs in March, according by payroll services company Automatic Data Processing Inc. The report showed an increase of 8,000 private sector jobs last month, instead of the decline of 45,000 private sector jobs economists were expecting, according to Briefing.com.

Also Wednesday, outplacement firm Challenger, Gray & Christmas reported that March layoff notices fell by 26% to 53,579 from February. But that still puts the number of cuts announced 9% above year-earlier levels.

Both reports come ahead of Friday's closely watched employment report from the Labor Department, which includes private and public sector jobs data. Economists are forecasting a decline of 50,000 jobs in March. The unemployment rate is expected to increase to 5% from 4.8% in February.

Other economic news: U.S. factory orders fell a worse-than-expected 1.3% in February, although it was less than the 2.3% decline in January. Economists forecasted a decline of 0.8% for the month.

Mortgage application volume tumbled 28.7% during the week ending March 28, according to the Mortgage Bankers Association's weekly survey. The index fell to levels from three weeks ago.

The nationwide average price of gasoline tied Monday's record on Wednesday at $3.287 a gallon, according to the closely watched survey conducted for the motorist group AAA.

Investors will keep an eye on a Department of Labor report on last week's jobless claims and an Institute for Supply Management index of the service sector due Thursday.

Company news: The Wall Street Journal is reporting that National City (NCC, Fortune 500), the embattled Ohio bank dealing with loan losses and a declining share price, is considering selling itself to rival KeyCorp (KEY, Fortune 500). National City signaled it was open to a sale Tuesday morning when it announced it is looking at strategic alternatives.

Electronics retailer Best Buy (BBY, Fortune 500) said a slowdown in customer traffic led to a dip in quarterly profit. Best Buy posted fourth-quarter profit that came in 3% lower than the same period last year, but the company's earnings and revenue still beat analysts' expectations.

CNBC reported just before the market's close Wednesday that Merrill Lynch (MER, Fortune 500) is planning to cut 10% to 15% of its workforce - excluding brokers - sometime in May.

Blackberry maker Research in Motion (RIMM) reported better-than-expected earnings after the market's close Wednesday and issued upbeat guidance for the coming quarter. The stock rose in after hours trading.

Despite market loses, breadth was mostly positive Wednesday. On the New York Stock Exchange, winners still topped losers by about 6 to 5 on volume of around 1.4 billion shares. On the Nasdaq, advancers topped decliners by about the same margin on volume of over 2 billion shares.

Commodities: The Department of Energy's weekly oil inventory report showed crude supplies increased 7.3 million barrels, much more than the 2.3 million analysts were expecting. But gasoline supplies dropped more than expected.

Investors have been worried that slumping demand for oil and lower refinery output will result in diminishing supplies and higher oil prices.

U.S. light crude oil for May delivery soared $3.85 to $104.83 a barrel on the New York Mercantile Exchange after slipping below $100 earlier on the day.

COMEX gold for June delivery added $12.40 to $900.20 an ounce after falling below $900 for the first time in nine weeks Tuesday.

Other markets: The dollar fell near an all-time low against the euro but posted slight gains versus the yen Wednesday.

Long term treasury prices slipped a bit, raising the yield on the benchmark 10-year note to 3.60% from 3.55% at Tuesday's close. Bond prices and yields move in opposite directions. To top of page

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