US stocks: Bernanke news a fillip

NEW YORK - US stocks rallied on Thursday, as Federal Reserve Chairman Ben Bernanke pointed to the central bank's success in fighting inflation, and strong earnings from investment bank Bear Stearns Cos. boosted financial shares.

Investors extended a late-day rally from Wednesday and snapped up downtrodden shares after weeks of rout. A rise in shares of Qualcomm Inc. helped push the Nasdaq Composite Index to its biggest one-day gain in more than two years.

Microsoft Corp. shares rose after the bell after the company said chairman Bill Gates will transition out of a day-to-day role in the company in 2008.

The Dow Jones industrial average rose 198.27 points, or 1.83 per cent, to 11,015.19, closing above the 11,000 level for the first time in more than a week. The Standard & Poor's 500 Index made its biggest one-day gain in more than 2-1/2 years, rising 26.12 points, or 2.12 per cent, at 1,256.16. The Nasdaq Composite Index was up 58.15 points, or 2.79 per cent, at 2,144.15.

"The reason it's up isn't so much that (Bernanke) said anything; it's what he didn't say," said Jim Paulsen, chief investment strategist with Wells Capital Management in Minneapolis, Minnesota. "Leading up to this, people thought he might be more hawkish" given recent data showing an uptick in inflation.

Speaking before the Economic Club of Chicago, Bernanke said inflation expectations had "fallen back somewhat" and that the impact of high energy prices on the economy has been limited. That offset worries from earlier this week when core consumer and producer price data rose above expectations.

His comments suggested the Fed may have room to pause its two-year-long cycle of interest rate hikes in the next few months. Fed fund futures have fully priced in an interest rate hike at the Fed's next policy meeting on June 28-29.

Shares of Bear Stearns rose 5.9 per cent to US$131.56 on the New York Stock Exchange after the investment bank said quarterly profit rose 81 per cent.

Shares of Citigroup Inc., the world's largest financial services company, jumped 1.8 per cent to US$48.68.

On the technology front, shares of wireless technology company Qualcomm rose 3.8 per cent to US$44.89 on the Nasdaq. The company raised its quarterly earnings outlook on Tuesday.

"The Nasdaq has a lot of high volatility stocks so it's not surprising that they rebound a bit more rapidly," said Greg Fuss, Managing Director at Deutsche Bank Private Wealth Management. "I'd give you pretty good odds that we've seen the worst." A rise in crude oil prices also boosted energy shares, including Exxon Mobil Corp., which gained 2.3 per cent to US$59.12. US crude for July delivery rose 36 cents to US$69.50 as petrol demand remained strong despite high prices.

On the economic front, the US Labor Department said jobless claims for unemployment benefits unexpectedly fell to 295,000 last week.

Growth in factory activity in the mid-Atlantic region eased in June, though it was still above expectations, according to the Federal Reserve Bank of Philadelphia. A separate report showed an unexpected decline in US industrial output for May.

Trading was active on the New York Stock Exchange as it instituted trading curbs on the upside. Advancing shares beat declines by about 4 to 1 on both the Nasdaq and New York Stock Exchange.

About 1.9 billion shares were traded on the NYSE, above the 1.61 billion daily average for last year. On Nasdaq, about 2.3 billion shares changed hands, above the 1.8 billion daily average last year.

- REUTERS