Bulls Go on the Offensive

New Century Financial(NEW Quote) regained 10.1% after a disastrous 70% decline Monday. Accredited Home Lenders Holding(LEND Quote) gained 9.5% and Countrywide Financial(CFC Quote) added 4.7% on the day.

Private lenders were further aided when Fed Chairman Ben Bernanke urged Congress to bolster regulation of government-sponsored mortgage giants Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote), which nonetheless rallied 3.2% and 1.2%, respectively.

Wednesday's beige book will help square off for traders whether the economy is slipping further than Bernanke says. If the report reveals strength, the market could keep rallying. If it reflects the weakness investors fear, the sound of a cat falling back to earth will be easy to discern.