U.S. stocks advance as investors analyze Bernanke testimony

U.S. stocks rose, after the Standard & Poor’s 500 Index (CME:SPU13) snapped an eight-day rally yesterday, as Federal Reserve Chairman Ben S. Bernanke said the pace of bond purchases was not on a preset course.

Bank of America Corp. and Bank of New York Mellon Corp. gained more than 2% after earnings topped forecasts. Yahoo! Inc. advanced 9% as its profit beat analysts’ estimates. American Express Co. retreated 2.5% after analysts said a European Union proposal would cut profits. Caterpillar Inc. dropped 1.9% after short seller Jim Chanos said the company is being hurt by the slowdown in commodities demand.

The S&P 500 rose 0.3% to 1,681.70 at 1:42 p.m. in New York, after falling from a record high yesterday. The Dow Jones Industrial Average climbed 10.27 points, or 0.1%, to 15,462.12 today. Trading in S&P 500 stocks was in line with the 30-day average at this time of day.

“The market is responding to the fact that the Fed is not going to create an arbitrary definition of when and how the QE program is going to end,” Stephen Wood, the New York-based chief market strategist who helps oversee about $174 billion at Russell Investments, said by phone. “The Fed is going to respond to the data and they want to maintain flexibility in their policies.”

Bernanke said the central bank’s asset purchases “are by no means on a preset course” and could be reduced more quickly or expanded as economic conditions warrant.

‘Current Pace’

“If the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2%, or if financial conditions -- which have tightened recently -- were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer,” Bernanke said in prepared testimony before the House Financial Services Committee.

Central bank stimulus has helped fuel a surge in stocks worldwide, with the benchmark U.S. index jumping 149% from its March 2009 low. Fed policy makers have been debating the timing and pace of any cuts in the central bank’s $85 billion in monthly bond purchases. Bernanke has said any reduction will be tied to sustained improvement in the labor market or an increase in inflation.

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