Stocks Hold Ground on Bailout Testimony

Updated from 11:56 a.m. EDT

Stocks on Wall Street were trading erratically Tuesday as investors took in testimony from Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson on the government's historic bailout of the U.S. financial markets.

The Dow Jones Industrial Average was up 17 points to 11,033, and the S&P 500 lost 0.4 points to 1207. The Nasdaq tacked on 4.4 points to 2183.

On Monday, stocks suffered as traders attempted to assess the impact of Paulson's sweeping bailout of financial firms. Paulson's $700 billion plan would create a government institution to buy from banks the bad debt at the core of the credit crisis.

Although the plan is a welcome boon to many investment firms with hard-to-value securities on their balance sheets, fear remains that the massive government-spending increase will drive up interest rates and weaken the dollar as new government debt floods the market.

Speaking before the Senate Banking Committee, Paulson emphasized the fragility of the financial system and said that last week's market turmoil spread into other segments of the economy. He also said that regulatory reform is needed, but that providing an immediate response to the financial crisis is critical. Bernanke agreed that swiftly dealing with the current crisis should take priority.

"If the deal gets passed, the stock market is going to react well because they believe that the plan can return liquidity to the markets," said Chip Hanlon, president of Delta Global Advisors. However, he said that the plan has inflationary implications, and commodities will also increase in price as a result of the plan.