The stock market rebounded on Tuesday from its worst decline since November after the chairman of the Federal Reserve, Ben S. Bernanke, defended the Fed’s bond-buying stimulus and sales of new homes hit a four-and-a-half-year high.
The Standard Poor’s 500-stock index had climbed 6 percent for the year and came within reach of its highs before the minutes from the Fed’s January meeting were released last Wednesday. Since then, the S. P. 500 has fallen 1 percent.
Mr. Bernanke, in testimony on Tuesday before the Senate Banking Committee, strongly defended the Fed’s bond-buying stimulus program and quieted rumblings that the central bank may pull back from its stimulative policy measures, which were set off by the release of the Fed minutes last week.
Mr. Bernanke’s comments helped ease investors’ concerns about a stalemate in Italy after a general election failed to give any party a parliamentary majority. Concern about the threat of prolonged instability and financial crisis in Europe sent the S. P. 500 to its worst decline since Nov. 7 in Monday’s session.
Mr. Bernanke “certainly said everything the market needed to feel in order to get comfortable again,” said Peter Kenny, managing director at Knight Capital.
“The fear is we were going to see a rollover, and the first shot over the bow was what we saw out of Italy yesterday with the elections,” Mr. Kenny said. “When it came to U.S. markets, we saw some of that bleeding stop because our focus shifted from the Italian political circus to Ben Bernanke.”
Gains in homebuilders and other consumer stocks, after strong economic data, lifted the S. P. 500, and a 5.7 percent jump in Home Depot to $67.56 pushed up the Dow Jones industrial average. The PHLX housing sector index rose 3.2 percent.
Economic reports that showed strength in housing and consumer confidence also supported stocks. Home prices rose more than expected in December, according to the S. P./Case-Shiller index. Consumer confidence rebounded in February, jumping more than expected, and new-home sales rose to their highest in four and a half years in January.
But Mr. Bernanke also urged lawmakers to avoid sharp spending cuts set to go into effect on Friday, which he warned could combine with earlier tax increases to create a “significant headwind” for the economic recovery.
The Dow Jones industrial average gained 115.96 points, or 0.84 percent, to 13,900.13. The Nasdaq composite index advanced 13.40 points, or 0.43 percent, to close at 3,129.65.
The S. P. 500 rose 9.09 points, or 0.61 percent, to 1,496.94.
Despite the bounce, the S. P. 500 was unable to move back above 1,500, a closely watched level.
The CBOE Volatility Index, or the VIX, a barometer of investor anxiety, dropped 11.2 percent, a day after surging 34 percent, its biggest percentage jump since Aug. 18, 2011.
The uncertainty caused by the Italian elections continued to weigh on stocks in Europe. The FTSEurofirst-300 index of top European shares closed down 1.36 percent. The benchmark Italian index tumbled 4.9 percent.
Home Depot gave the biggest boost to the Dow and provided one of the biggest lifts to the S. P. 500 after the home improvement chain reported adjusted earnings and sales that beat expectations.
Shares of Macy’s gained 2.78 percent, or $1.07, to $39.59, after the department store chain stated it expected full-year earnings to be above analysts’ forecasts because of strong holiday sales.
In the bond market, interest rates inched higher. The price of the Treasury’s 10-year note slipped 6/32, to 101 1/32, while its yield rose to 1.89 percent, from 1.87 percent late Monday.
This article has been revised to reflect the following correction:
Correction: February 26, 2013
Because of an editing error, an earlier version of this article misidentified the Senate panel before which Ben S. Bernanke, the Federal Reserve chairman, was testifying Tuesday. It was the Banking Committee, not the Finance Committee.
Article source: http://www.nytimes.com/2013/02/27/business/daily-stock-market-activity.html?partner=rss&emc=rss