Stock indexes rose sharply Wednesday as the Federal Reserve chairman spelled out ways the central bank might stimulate the American economy if weakness persists and if the threat of deflation, or falling prices, reemerges. The rally came after three days of losses, but then it lost steam in the final hours of Wednesday trading.

Ben S. Bernanke’s remarks to Congress were far from a promise for more economic stimulus, but markets reacted immediately nonetheless. The Dow Jones industrial average nearly doubled its morning gains in 10 minutes, and the dollar fell as investors shed lower-risk assets. Some of the stock market’s gains fizzled in afternoon trading.

“It’s a complete overreaction,” said Barry Knapp, head of United States equity strategy at Barclay’s Capital. Mr. Knapp said Mr. Bernanke’s remarks indicated the economy would have to deteriorate substantially for the Fed to step in.

In afternoon trading Wednesday, the Dow Jones industrial average gained 54.30 points, or 0.44 percent, to 12,501.18, and the Standard Poor’s 500-stock index gained 5.14 points, or 0.39 percent, to 1,318.78. Both indexes had been up as much as 1.4 percent earlier.

The Nasdaq composite index, which focuses on technology shares, rose 16.04 points, or 0.58 percent, to 2,979.95.

Energy and materials stocks rose more than the overall market as investors bought companies that would benefit most from an upturn in the economy. All 30 of the stocks in the Dow average rose, led by the heavy equipment maker Caterpillar with a 2.2 percent gain.

The Fed’s policy of ultra-low interest rates and buying Treasury bonds on the open market has pushed stocks higher since last August. Many traders were disappointed when the Fed ended its second round of bond purchases in June.

The first sign that Fed governors were considering new stimulus measures came Tuesday afternoon, when the Fed released minutes from its June 21-22 meeting. Those minutes indicated that some Fed officials favored taking more action to prop up the economy if needed.

In his testimony before Congress, Mr. Bernanke spelled out specific steps the Fed might consider if the economy gets worse, including another round of bond purchases. He also detailed what the Fed would do should the economy improve.

Mr. Bernanke’s position remains that the slowdown in the economy this spring was due largely to temporary factors including high gas prices and parts shortages caused by the earthquake in Japan. He said he still expects economic growth to pick up in the second half of the year.

Remarks from the Fed chairman often have an immediate effect on stocks. During a speech in Jackson Hole, Wyo., last Aug. 27, Bernanke outlined an effort to spur economic growth, put a floor under consumer prices and push markets higher through the purchase of government bonds.

So was Bernanke’s talk in front of Congress today akin to his 2010 speech at Jackson Hole?

Joe Saluzzi, co-head of equity trading at Themis Trading in Chatham, N.J., agreed that the market’s rally was an overreaction. “It’s just silliness in my opinion. There’s nothing new here,” he said. “But the bulls are taking this as `This is fantastic.” ’

Signs of healthy growth in China also helped push stocks higher. The Chinese government reported that the country’s economy grew at a slower but still healthy rate of 9.5 percent last quarter. China is attempting to rein in its expansion and ease inflation, but a sudden drop-off in growth could hurt the American economy by cutting into demand for exports.

Markets were also higher as fears abated that Italy would default on its debt. The SP 500 fell 2.9 percent over the past three days as traders worried one or more European countries would fail to pay their debts, causing a global slowdown in lending.

A successful auction of Italian government debt and a pledge by that country’s leaders to accelerate cost-cutting plans reassured markets that Europe’s third-largest economy was not on the verge of becoming the latest European country to need emergency financial support to avoid a default. Italian stocks rallied 1.8 percent on relief that Italy’s fiscal outlook was not as shaky as believed just a few days ago.

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