Bernanke quashes US stimulus hopes

Investors' optimism about fresh stimulus by the Federal Reserve was dampened as Ben Bernanke indicated the central bank wasn't planning any immediate action.

While the Fed chief reiterated that the central bank would be ready to inject more money into the system should the US economy deteriorate, he also said the time had not come yet.

"We're not prepared at this point to take further action," Bernanke told the Senate Banking Committee.

In afternoon trading, the Dow Jones Industrial Average fell 0.16 per cent, the Standard & Poor's 500 Index dropped 0.51 per cent and the Nasdaq shed 1.15 per cent. Across the Atlantic, the Stoxx 600 Index dropped 0.8 per cent.

While US retail sales unexpectedly rose, increasing 0.1 per cent in June, initial claims for state unemployment benefits fell less than expected last week, indicating the recovery is still fragile.

"The economy is touch and go. You really need to take the improvement in claims with a grain of salt. It feels like the labour market is moving sideways," Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania, told Reuters.

The euro last traded 0.1 per cent weaker at US$1.4170.

Weighing on the US dollar, which advanced 0.48 per cent against a basket of currencies, was Moody's warning late on Wednesday that the US could lose its top Aaa credit rating if Congress didn't raise the debt ceiling.

In a statement, Moody's said it sees a "rising possibility" that the debt limit wouldn't be raised in time to prevent a default on some US Treasury debt obligations.

President Barack Obama was considering summoning congressional leaders to Camp David this weekend to work on a plan to raise the debt ceiling after yesterday's negotiations on a deficit-cutting plan of at least US$2 trillion stalled, Bloomberg News reported, citing two people familiar with the matter.

Still, the Treasury drew solid demand for a third consecutive sale at today's auction of 30-year bonds.

The bid-to-cover ratio on the US$13 billion in bonds, which gauges demand by comparing total bids with the amount offered, was 2.80, versus a 2.64 average at the past 10 sales, according to Bloomberg.

"The market seems to believe that the debt-limit situation will be resolved satisfactorily," Jeffrey Caughron, a partner at Baker Group LP in Oklahoma City who advises community banks on investments of more than US$30 billion. "Most market participants see it unthinkable that the president and the Congress would allow a default, even a partial default on US obligations."

JPMorgan provided good earnings news as the second-largest US bank reported its highest half-year profit ever. Second-quarter net income rose 13 per cent from a year earlier, to US$5.43 billion, or US$1.27 a share, six cents higher than the average estimate of analysts surveyed by Bloomberg.

However, Marriott International Inc disappointed, forecasting earnings that fell short of estimates.

After reaching a record earlier in the session, gold gave up gains. Spot gold rose as high as US$1,594.16.

A Reuters poll showed that analysts expect gold prices to average US$1,550 an ounce in 2012, supported by doubts about the strength of global economic recovery and concerns over euro zone debt.

Spot gold was last 0.4 per cent stronger at US$1,588.06 an ounce. US gold futures for August delivery rose US$3.40 an ounce to US$1,588.90.