Bernanke Helps Stocks Build on Gains

An uneven session for the averages finishes well after Bernanke's testimony ends.
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Updated from 4:16 p.m. EST

Stocks closed an uneven session with gains Wednesday after Ben Bernanke, in his first appearance before Congress as

Federal Reserve

chairman, said the economy appeared to be on solid footing and that new rate hikes might be needed to stave off inflation.

The

Dow Jones Industrial Average

closed up 30.58 points, or 0.28%, to 11,058.97. The

S&P 500

rose 4.47 points, or 0.35%, at 1280.00, and the

Nasdaq Composite

gained 14.26 points, or 0.63%, to 2276.43. All three rose 1% or more on Tuesday, when the Dow closed above 11,000 for the first time in more than a month.

About 1.73 billion shares changed hands on the

New York Stock Exchange

, with advancers beating decliners by a 3-to-2 margin. Volume on the Nasdaq was 1.79 billion, with advancers outpacing decliners 3 to 2.

The 10-year Treasury bond was up 2/32 in price to yield 4.60% -- 9 basis points below the two-year note's yield -- while the dollar was roughly flat with the yen and euro.

"Investors rejoiced yesterday as energy prices fell, but they ignored rising interest rates," said Ken Tower, chief market strategist with CyberTrader. "I don't think it will be too long before the focus shifts back to rising rates and an inverted yield curve."

Bernanke, who took over for Alan Greenspan on the first of this month, said more interest rate increases may be needed to keep inflation at bay, considering the strength of the U.S. economy and high energy prices. The text of Bernanke's prepared comments, with language that was nearly identical to the Federal Open Market Committee's recent policy statement, was released just before his testimony got under way a little after 10 a.m. EST.

"The new Fed chairman clearly expects to have to raise rates a bit further, but the extent of the tightening is dependent on the relative performance of the labor and housing markets," said Ian Shepherdson, chief economist with High Frequency Economics.

Shepherdson also said that "Bernanke subscribes to the Greenspan view that an excessively tight labor market raises inflation pressures, and with the economy now operating at a relatively high level of resource utilization it is clear this is where he sees the biggest upside inflation threat."

After Bernanke's appearance before Congress, fed funds futures were indicating a 96% chance that the overnight bank-lending rate will be raised to 4.75% at the March FOMC meeting, up from 94% on Monday. The chance that the fed funds rate will reach 5% after the June meeting was 92%, compared with just a 24% chance three weeks ago.

Paul Nolte, director of investments with Hinsdale Associates, said his comments weren't a surprise. "The futures are already pointing towards a rate hike in March, so it follows that Bernanke is allowed to be an inflation fighter and continue what Alan Greenspan was doing," Nolte said.

One area where Bernanke has received something of a gift since his appointment is in energy prices, with front-month crude falling more than 10% since Jan. 31. Prices remained lower Wednesday, with the March crude contract plummeting $1.92 to close at $57.65 a barrel, its lowest finish since late November.

The Energy Department released its weekly inventory report, with crude inventories rising by 4.9 million barrels. Distillate stocks rose by 900,000 barrels and gas stocks were up 2.2 million barrels.

The big U.S. corporate story of the day involved a huge deal with

Merrill Lynch

(MER)

, which announced it has acquired 49.8% of asset manager

BlackRock

(BLK) - Get Report

.

Merrill Lynch will merge its investment management business to create a combined company under the BlackRock name. The announcement sent shares of BlackRock up $5.29, or 3.6%, to finish at $151.25.

On the economic front, the New York Federal Reserve Bank said that its N.Y. Empire State index rose slightly to a reading of 20.3 in February from 20.1 in January. The index was expected to dip to 18.0. New orders, shipments and unfilled orders were essentially unchanged from January.

The Federal Reserve said January industrial production unexpectedly fell 0.2%, below the consensus forecast for a 0.2% increase. December production was revised up by 0.3%. Capacity utilization reached 80.8%, the highest level since mid-2000.

By sector, the S&P Retail index was higher by 1.1%, the Philadelphia/KBW Bank Sector index was up 0.6% and the Philadelphia semiconductor sector index gained 0.3%. Elsewhere, the Philadelphia oil service sector index was off 2.3%, and the Amex oil index lost 0.5%.

Investors were facing another overflowing docket of earnings news Wednesday, with nearly 200 companies scheduled to report, including

Hewlett-Packard

(HPQ) - Get Report

,

Applied Materials

(AMAT) - Get Report

and

Biogen Idec

(BIIB) - Get Report

.

After the bell Wednesday, H-P said it had fiscal first-quarter earnings of $1.2 billion, or 42 cents a share, compared with $900 million, or 48 cents a share, a year ago. Revenue rose to $22.7 billion from $21.5 billion a year ago. Excluding items, H-P had earnings of $1.4 billion, or 48 cents a share, beating the Thomson First Call consensus by 4 cents. H-P lost 82 cents, or 2.5%, to $31.67 but were up almost 3% after the close.

Applied Materials posted fiscal first-quarter income of $143 million, or 9 cents a share, falling 51% from year-ago levels. Excluding charges, the company earned 19 cents a share, coming in ahead of the Thomson First Call forecast by 3 cents. Revenue rose 4% to $1.86 billion from a year ago. Shares closed higher by 20 cents, or 1%, to $20.46 before the report.

Biogen Idec reported fourth-quarter earnings of $55.6 million, or 16 cents a share, up 94% from a year ago. Excluding items, the company had earnings of 48 cents a share on revenue of $632.9 million. Analysts expected EPS of 47 cents on revenue of $626 million, according to Thomson First Call. Biogen finished the session up $1.34, or 3%, to $45.72 but traded lower in the after-hours session.

Tuesday night, teen retailer

Abercrombie & Fitch

(ANF) - Get Report

said fourth-quarter earnings rose 58% from a year ago to $164.6 million, or $1.80 a share, beating estimates on a 40% jump in sales to $961.4 million. Abercrombie noted that its recent streak of blistering same-store sales growth --- 33% in January -- won't be sustainable in 2006. Abercrombie & Fitch fell $1.45, or 2.1%, to $67.33.

Jones Apparel

(JNY)

posted fourth-quarter net income of $55.7 million, or 48 cents a share, up from $34.1 million, or 28 cents a share, a year ago. Revenue rose to $1.22 billion from $1.08 billion last year. The Thomson First Call consensus was for a profit of 45 cents a share on revenue of $1.20 billion. Jones dropped $1.71, or 5.3%, to $30.51.

Mittal Steel

(MT) - Get Report

said fourth-quarter earnings fell 58% from a year ago to $650 million, topping estimates. The company forecast higher first-quarter earnings on a roughly 10% rise in orders. Shares lost $2.25, or 6.5%, to $32.35.

On Thursday, earnings reports are anticipated from computer giant

Dell

(DELL) - Get Report

,

Target

(TGT) - Get Report

and

J.C. Penney

(JCP) - Get Report

.

Overseas markets were mixed. Japan's Nikkei fell 1.6% overnight to 15,933. In London, the FTSE 100 was up 0.3% at 5810, while Germany's Xetra DAX was adding 0.3% at 5778. Hong Kong's Hang Seng was virtually unchanged overnight at 15,423.