Dow jumps on dovish Bernanke

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NEW YORK (CNNMoney) -- U.S. stocks rallied Monday after Fed chairman Ben Bernanke's comments on the job market gave investors reason to believe interest rates will stay low.

The Dow Jones industrial average (INDU) rose 161 points, or 1.2%, to end at 13,242. American Express (AXP, Fortune 500) led gainers on the Dow after the company hiked its quarterly dividend payment 11% to 20 cents per share.

It was the biggest one-day gain for the Dow since Jan. 3, when the index rose nearly 180 points.

The S&P 500 (SPX) gained 19 points, or 1.4%, to 1,416. The Nasdaq (COMP) added 55 points, or 1.8%, to 3,122.

In a speech to fellow economists, Bernanke said, "We cannot yet be sure that the recent pace of improvement in the labor market will be sustained."

He added that the Fed's "accommodative monetary policies" should help reduce high unemployment over time.

The comments reaffirm investors' expectation that the central bank will keep interest rates low for a long time, and that the Fed will act if the economy deteriorates.

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"We got some clarity on what Bernanke believes the economic cycle will look like," said Frank Davis, director of sales and trading at LEK Securities.

While stocks have rallied this year on growing optimism about the economy, the Fed has maintained a cautious outlook. The central bank has pledged to keep interest rates near historic lows until late 2014.

Traders said stocks are being supported by the combination of improving economic data and tacit support from the Fed. So far in 2012, the S&P 500 has gained 12%, the Dow is 7% higher and the Nasdaq is up nearly 18%.

But the gains on Monday were exaggerated by positioning ahead of the quarter's end, said Peter Boockvar, chief market strategist with Miller Taback & Co.

"Bernanke didn't say anything new," Boockvar explains. "The market is just grabbing on to something at the end of the quarter."

Boockvar said "the real test" for stocks will come when corporations begin reporting quarterly results next month.

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Overall, S&P 500 earnings are forecast to slip 0.5% in the first quarter, according to FactSet. That would be the first time corporate profits declined since the third quarter of 2009.

U.S. stocks closed slightly higher Friday, but the Dow and S&P 500 both finished the week down. Only the Nasdaq was able to claw out a weekly gain.

Economy: The National Association of Realtors said its index of pending home sales eased 0.5% in February to 96.5 from 97 in January.

The decline was in line with forecasts by economists surveyed by Briefing.com.

Companies: Shares of hospital operator Tenent Health Care (THC, Fortune 500) rose 5% as the Supreme Court takes up the 2010 health care reform law this week.

Shares of grocery store chain Safeway (SWY, Fortune 500) fell 3% on negative comments from Wall Street analysts.

Lions Gate Entertainment (LGF)'s gained 4%, after a gangbusters opening weekend for the studio's post-apocalyptic teen death-match film "The Hunger Games."

Shares of Arena Pharmaceuticals (ARNA) surged 25% after European regulators approved a marketing application for the company's weight loss drug.

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World markets: European stocks closed higher. The DAX (DAX) in Germany gained 1.2% and France's CAC 40 (CAC40) rose 0.7%. Britain's FTSE 100 (UKX) added 0.2%.

Asian markets ended little changed. The Shanghai Composite (SHCOMP) and Japan's Nikkei (N225) added 0.1%, while the Hang Seng (HSI) in Hong Kong was flat.

Currencies and commodities: The dollar fell against the euro and the British pound, but gained versus the Japanese yen.

Oil for May delivery rose 16 cents to settle at $107.03 a barrel.

Gold futures for April delivery fell $23.20 to end at $1,685.60 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury dropped, pushing the yield up to 2.25% from 2.24% late Friday.