Stimulus Hopes Keep Stocks Afloat - TheStreet

NEW YORK (

TheStreet

) - Stocks broke a three-day losing streak Wednesday spurred by

Federal Reserve

chairman Ben Bernanke's assurance that the central bank was prepared to give the economy another stimulus boost if needed.

The

Dow Jones Industrial Average

closed up by 45 points, or 0.4%, at 12,492. The

S&P 500

finished higher 4 points, or 0.1%, at 1317, and the

Nasdaq Composite

climbed up 15 points, 0.5%, at 2,797. The indexes closed well off their session-highs, steadily paring gains in the last two hours of trading.

Before lawmakers in Washington, Bernanke gave further credibility to the revelations contained in Tuesday's release of the minutes of the last Federal Open Market Committee, which hinted that further monetary stimulus might be considered if the job market remains poor. Bernanke said Wednesday the Fed's choices potentially include additional asset purchases, an extension on how long the Fed holds the assets it has and a reduction in the interest rates for banks.

Federal Reserve Chairman Ben Bernanke

The key words were "highly accommodative," said Curvin Miller, vice president of Russell & Company. "That means that the Fed will do whatever it takes to avoid sharp short-term contractions."

Despite the possibility that additional Fed action could depress Treasury yields, investors flocked to the benchmark 10-year note, which fell 6/32, lifting yields to 2.901%. A $21 billion auction of 10-year notes was well received with yields at 2.918%, below the 2.931% the market had expected.

The afternoon's fading rally, however, suggested that some investors were doubtful that the Federal Reserve would implement a third round of quantitative easing. In an afternoon speech, Richard W. Fisher, president of the Federal Reserve Bank of Dalla,

said that adding more liquidity into the market was "not the answer to our problems." Fished noted that monetary policy has "reached the limits of accommodation."

Earlier, global stocks gained on news that

China's gross domestic product jumped 9.5% in the second quarter from the prior year, exceeding expectations for an increase of 9.4% and representing a slight easing after of 9.7% growth in the first quarter. The FTSE in London gained 0.6, and the DAX in Frankfurt was advanced 1.3%. Overnight, Hong Kong's Hang Seng rose 1%, and Japan's Nikkei added 0.4%.

Meanwhile, concerns over the eurozone were pushed to the backburner.

Despite Tuesday's downgrade of Ireland's government bonds to junk status, , some promising news came out from across the pond.

Italy accelerated efforts to pass a €40 billion ($56 billion) austerity plan. And, large European banks are taking measures to shield themselves in the event that the eurozone spirals out of control, according to a

Wall Street Journal

report. The measures include limiting lending to companies in Italy and Spain, holding more money with the

European Central Bank

and using credit-default swaps as protection against holding sovereign debt from struggling countries.

The euro strengthened 1.2% against the U.S. dollar, which traded 1.2% lower against a basket of currencies. A weaker greenback pushed gold to a record $1588.90 an ounce during the trading session. Gold for August delivery gained $23 at $1,586 an ounce.

"The market seems to be focused on domestic issues today, but I don't think European issues are going anywhere," said Miller of Russell & Company. "The next two weeks will be key -- we need to see how European leaders plan to resolve these issues and we need to see what happens regarding our own debt ceiling."

The latest update on the U.S. budget deficit in June showed the budget gap is on track to exceed $1 trillion three years in a row. The ballooning deficit has put pressure on lawmakers to extend the debt limit before Aug 2. when the U.S. would default on its debt. June's deficit came in at $43.1 billion, according to the Treasury Department. The shortfall was smaller than the May's $57.6 billion but that was largely due to a temporary decline the estimated cost of education loans in June.

The Bureau of Labor Statistics reported that

import prices slipped for the first time in one year, with a 0.5% decline in June after a 0.1% gain in May. While declining oil and food costs help keep a lid on import prices, an uptick in auto and consumer prices kept economists concerned about inflationary pressures.

Conglomerates and basic materials were showing the strongest performance of the session with

Caterpillar

(CAT) - Get Report

,

Merck

(MRK) - Get Report

,

Chevron

(CVX) - Get Report

,

General Electric

(GE) - Get Report

and

Alcoa

(AA) - Get Report

topping the Dow. All 30 companies in the index rose, with

Wal-Mart

(WMT) - Get Report

,

Kraft Foods

(KFT)

and

Verizon Communications

(VZ) - Get Report

putting in the weakest gains.

Of the 4 billion shares trading on the New York Stock Exchange, 67% rose while 31% declined. 1.9 billion shares changed hands on the Nasdaq.

In corporate news,

News Corp.

(NWSA) - Get Report

withdrew its bid for British Sky Media amid investigations into whether News Corp.'s now-defunct tabloid,

News of the World

, used illicit reporting methods. News Corp.'s stock gained 4% to $16.00.

Shares of

Netflix

(NFLX) - Get Report

rose 3% to $299 after the

online video subscription company announced changes to its pricing strategy that includes plans to separate its DVD and streaming services into two separate membership options.

Capital One Financial

(COF) - Get Report

surpassed analysts' second-quarter profit estimates with earnings of $1.97 a share. The company said it plans

to offer $2 billion in new common stock. Shares slipped 2% to $51.11.

Shares of

Kinetic Concepts

(KCI)

were rising 6% to $68 on news that the

medical technologies company agreed to be bought by funds advised by Apex Partners, along with affiliates of Canada Pension Plan Investment Board and the Public Sector Pension Investment Board.

A rally in the stock market and a larger-than-expected drop in crude oil inventories pushed oil futures up Wednesday. The August contract gained 62 cents to trade at $98.05 a barrel. Crude oil inventories shed 3.1 million barrels in the week ended July 8, reported the U.S. Energy Department. Analysts had expected a decline of 2.1 million barrels.

-- Written by Chao Deng and Melinda Peer in New York

.