The Dow Jones Industrial Average gained 108 points, or 0.8%, to 13893 in afternoon trading, reclaiming about half of Monday's 216-point tumble, which was triggered by Italian election results that ushered in political uncertainty.
It was the Dow's steepest one-day drop since Nov. 7. The Standard & Poor's 500-stock index rose seven points, or 0.5%, to 1495.
The Nasdaq Composite Index rose 10 points, or 0.3%, to 3126, after spending much of the morning in negative territory. Home Depot shot 5.7% higher after it reported better-than-expected quarterly results, announced a $17 billion share buyback program and raised its quarterly dividend. Its gain led the Dow.
Stocks coasted higher after Mr. Bernanke made a strong case for the benefits of the Fed's easy-money policies, meant to stimulate the economy, in testimony before Senate lawmakers. Investors have paid keen attention to when the Fed might eventually wind down stimulus programs, which most investors cite as prime drivers for stock-market gains since 2009.
Last week, the minutes from the most recent Fed policy meeting showed that some officials are uneasy about consequences of these efforts, which rattled stocks.
Growth-sensitive materials and energy stocks led gains across all 10 of the S&P 500's sectors. Macy's climbed 3.2% after posting quarterly earnings and issued a current-year profit forecast that topped analysts' expectations.
Home builders PulteGroup, Lennar and D.R. Horton added more than 3% after the S&P Case-Shiller 20-city home prices index for December rose slightly more than predicted.
Elsewhere on the economic front, U.S. new-home sales posted the biggest monthly jump in nearly two decades last month, reaching the highest level since mid-2008, according to the Commerce Department.
U.S. consumer confidence rebounded this month to the highest level since November, according to the Conference Board, a nonprofit research group. And manufacturers in the central Atlantic region report activity turned positive this month, according to the Federal Reserve Bank of Richmond.
EUROPEAN STOCKS, BONDS
European stocks slumped and Italian yields spiked Tuesday, as inconclusive Italian election results fueled fears over the potential for political instability in Europe's third-largest economy.
The Stoxx Europe 600 index dropped 1.3% to close at 284.60. Italy's FTSE MIB index sank the most among country-specific indexes, dropping 4.9% to 15,552.20, with banks posting some of the biggest losses.
Banca Popolare di Milano Scarl dropped 5.7% and Intesa Sanpaolo SpA fell 9.1%. Italian authorities imposed a short-selling ban on Intesa Sanpaolo.
The sharp losses came as election results in Italy pointed to no clear winning coalition, which raised worries about a new election and political instability in the euro zone.
The results were inconclusive with the center-left coalition led by Pier Luigi Bersani eking out a small majority in the lower house, but with no parties or alliances winning enough seats to control the Senate. Both houses are needed to pass legislation.
Adding to the uncertainty, former Prime Minister Silvio Berlusconi said Tuesday he won't ally with Mario Monti, but announced later in the day that he is open to forming a broad alliance to avoid a second election.
Italian markets were further rattled by a weak government debt sale. The Treasury sold 8.75 billion euros ($11.5 billion) of six-month bills at higher borrowing costs and lower demand than at the late-January sale.
Spanish yields were also rising with investors worried the Italian turmoil could spread to other countries. Spain's foreign minister, Jose Manuel Garcia-Margallo, reportedly said that he was extraordinarily worried about the election outcome as they showed strong results for anti-austerity parties.
The IBEX 35 index dropped 2.8% to 8,013.60. In Germany, Deutsche Bank AG slumped 4.9% and Commerzbank AG fell 3%. The DAX 30 index slid 2.3% to 7,597.11.
Shares of BASF SE declined 4.5%, as the chemical firm's earnings before interest and taxes missed market expectations.
In France, Societe Generale SA sank 5.4% and BNP Paribas SA dropped 3.2%. The CAC 40 index lost 2.7% to 3,621.92. And the U.K.'s FTSE 100 index fell 1.3% to 6,270.44, with shares of HSBC Holdings PLC 2.3% lower.
ASIA-PACIFIC STOCKS, BONDS
Asian stocks markets ended lower Tuesday as signs of an inconclusive general election in Italy sparked worries that another chapter in Europe's debt crisis could be opening.
Japan's Nikkei Stock Average fell 2.3%, Taiwan's Taiex lost 0.8% and South Korea's Kospi gave up 0.5%. Hong Kong's Hang Seng Index declined 1.3%, while China's Shanghai Composite fell 1.4%, staging a sharp afternoon retreat.
Asia investors took an early lead from the U.S., where stocks ended with heavy losses Monday as the votes were being counted in Italy.
The yen rebounded sharply overnight, particularly against the falling euro, as investors rediscovered the Japanese currency's safe-haven qualities in the face of European uncertainty.
The yen's gains hit exporter shares, with Nikon Corp. down 3.4%, Honda Motor Co. down 3.1% and Nissan Motor Co. down 2.6%.
Europe-exposed apparel firm Esprit Holdings Ltd. fell 1.4% in Hong Kong, while airline Cathay Pacific Airways Ltd. declined 2.6%.
Hong Kong and mainland China saw losses for resource-sector companies, with Aluminum Corp. of China Ltd. down 2.9% in Hong Kong and 3% lower in Shanghai. Jiangxi Copper Co. fell 2.6% in Hong Kong as well as Shanghai, while Angang Steel Co. dropped 2% in Hong Kong and 2.2% in Shenzhen.
Base metals were mostly higher at the close of London Metal Exchange trading Tuesday, boosted by U.S. Federal Reserve Chairman Ben Bernanke's reiteration of his support for the central bank's stimulus measures.
At the PM kerb close, LME three-month copper was up 0.3% at $7,858.50 a metric ton. Zinc was 0.5% higher at $2,098.50/ton. In remarks to Congress, Mr. Bernanke signaled that the Fed would continue its bond-buying programs, arguing that the benefits of such policies outweigh the risks.
The Fed's loose monetary policy has provided strong support for metals prices over the past few years.
Strong homes sales data from the U.S. Tuesday added to the positive tone, analysts said. Elsewhere, U.S. consumer confidence rebounded this month to the highest level since November.
Oil futures fell Tuesday to the lowest settlement level of the year, with the uncertainty surrounding Italy's general election contributing to overall concerns about the European economy.
April crude shed 48 cents, or 0.5%, to settle at $92.63 a barrel on the New York Mercantile Exchange. That was the lowest close for a front-month contract since late December.
Gold futures rose as investors stepped in after the Federal Reserve chief indicated the central bank's bond-buying program would continue. The most actively traded contract, for April delivery, rose 28.90, or 1.8%, to settle at $1,615.50 a troy ounce on the Comex division of the New York Mercantile Exchange, the highest ending price since Feb. 14. Compiled from MORRISON SECURITIES PTY. LTD.
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