NEW YORK (CNNMoney.com) -- Stocks rallied Wednesday after Federal Reserve Chairman Ben Bernanke again pledged to keep interest rates low for the foreseeable future, reassuring investors worried about the outlook for the economy.
Stocks posted slim gains in the early going, lost some steam after a worse-than-expected new home sales report and then turned higher again after the Fed chief began speaking. The gains continued throughout the session.
"Bernanke said they are going to keep the fed funds rate low, the dollar got hit and people started buying stocks," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.
The weaker dollar lifted dollar-traded commodities and big corporations that do a lot of business overseas. Financial and technology shares were also on the rise.
Investors were digging back in after a two-session decline. That retreat occurred as a lackluster forecast on consumer spending and a plunge in consumer confidence amplified concerns about the strength of the recovery.
Stocks managed to advance in the previous two weeks as investors focused on the positives in company and economic news, after a four-week rout.
Bernanke: In his first day on Capitol Hill, Bernanke told the House Financial Services Committee that while the economic recovery is moving along, the job market remains weak. Against this backdrop, the Fed is unlikely to lift the fed funds rate, the key overnight bank lending rate, anytime soon.
Bernanke was testifying before the House Wednesday and was scheduled to appear before the Senate Thursday.
"I don't think Bernanke is breaking a lot of new ground here," said Scott Anderson, senior economist at Wells Fargo. "A lot of his testimony is defending the Fed's actions during the crisis, while the economic outlook is similar to the minutes from the last Fed meeting."
Investors are looking for more on how and when the central bank plans to unwind emergency programs that were put in place at the height of the financial crisis, particularly after the Fed boosted the discount rate last week.
The Fed boosted the discount rate -- the emergency bank lending rate -- by a quarter-percentage point to 0.75%. It was a largely symbolic move in a rate that is rarely used by banks, but it was also the first rise in rates in over a year and the first move in any direction for rates in over two years.
The move was another step toward returning monetary policy to a so-called normalized state after the extraordinary measures of the last two years.
In his early statements, Bernanke implied that the Fed will at some point need to raise the fed funds rate but that such a move is not likely to happen soon, considering the still-moderate pace of recovery.
On the move: Big financial firms JPMorgan Chase (JPM, Fortune 500), Morgan Stanley (MS, Fortune 500) and Bank of America (BAC, Fortune 500) all rallied, along with regional banks such as Keycorp (KEY, Fortune 500), Fifth Third Bancorp (FITB, Fortune 500) and Regions Financial (RF, Fortune 500).
In deal news, printing services firm R.R. Donnelley (RRD, Fortune 500) said it is buying Bowne & Co. (BNE), a printer of corporate regulatory filings, in a deal worth $481 million. The $11.50 per share all-cash deal values the stock at more than 60% over Friday's closing prices.
Shares of Bowne & Co. rallied 60% in unusually-active New York Stock Exchange trading, while RR Donnelley shares gained 1%.
Shares of STEC (STEC) plunged almost 24% in unusually active Nasdaq trading after the company issued a 2010 profit forecast late Tuesday that disappointed investors. The computer data storage firm forecast revenue in a range that is more than 50% below analysts' forecasts and said it would report a quarterly loss, versus current forecasts for a profit.
JPMorgan Chase led the list of analysts downgrading or cutting forecasts on the company on Wednesday.
Market breadth was positive. On the New York Stock Exchange, winners beat losers by more than three to one on volume of 1.01 billion shares. On the Nasdaq, advancers beat decliners eight to five on volume of 2.13 million shares.
Toyota: The carmaker faced Congressional scrutiny for the second-straight day, with company president Akio Toyoda speaking before the House Oversight Committee regarding the recall of millions of vehicles over safety issues.
Toyoda, speaking through a translator, apologized for the safety problems that led to deaths, injuries and the eventual recall of more than 8 million vehicles with brake problems.
The company said it is creating a system that will make it easier for customer complaints to be addressed and that it is forming a "quality advisory group" to seek input on safety and quality measures.
On Tuesday, witnesses argued that the problems with the brakes could be tied to the vehicles' electronic throttle system, but Toyoda disputed that.
Transportation Secretary Ray LaHood testified earlier Wednesday, refuting claims that the National Highway Traffic Safety Administration (NHTSA) was a "lap dog" for the auto industry in dealing with safety claims. The NHTSA is part of the Transportation Department.
New home sales: Sales of new homes tumbled to the lowest level on record in January, the government reported Wednesday, surprising economists who expected a rise in sales.
Sales fell 11% to a 309,000 annual unit rate from 348,000 in the previous month. Economists expected sales to rise to a 354,000 annual unit rate.
"It's a quite disappointing number," said Anderson. "We saw incredible weakness in new home sales following the improvements we saw in the fall."
He said the improvements in the fall were largely a result of the tax rebates for buyers and that, with the impact of those rebates fading, sales have dropped off. But the existing home sales market is improving, he said, and the overall outlook for housing is getting better.
Jobs: The Senate approved a $15 billion jobs creation bill that gives businesses tax breaks for hiring the unemployed and extends tax breaks that encourage companies to buy equipment.
World Markets: In overseas trading, major European markets ended with moderate gains. Asian markets ended lower.
The dollar and commodities: The dollar tumbled versus the euro and the yen.
The dollar's weakness gave a boost to dollar-traded commodities.
U.S. light crude oil for April delivery rose $1.14 to settle at $80 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery fell $6 to settle at $1,097.20 per ounce.
Bonds: Treasury prices fell, raising the yield on the 10-year note to 3.69% from 3.68% late Tuesday. Treasury prices and yields move in opposite directions.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.80%||3.88%|
|15 yr fixed||3.20%||3.23%|
|30 yr refi||3.82%||3.93%|
|15 yr refi||3.20%||3.23%|
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