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Stocks In U.s. Rise As Bernanke Boosts Speculation Rates Will Be Lowered

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Guest The_Oldie


Feb. 27 (Bloomberg) -- U.S. stocks advanced for a fourth day, rebounding from an earlier decline, after Federal Reserve Chairman Ben S. Bernanke said the central bank would act quickly to prop up the nation's slowing economy.

Alcoa Inc., Caterpillar Inc. and General Motors Corp. led the gain by the Dow Jones Industrial Average, which had lost as much as 0.6 percent after orders for durable goods fell more than forecast in January. Freeport-McMoRan Copper & Gold Inc. had the second-biggest advance in the Standard & Poor's 500 Index after the dollar's decline sent metal prices higher.

The Dow average added 14.74 point, or 0.1 percent, to 12,699.66 at 10:46 a.m. in New York. The S&P 500 climbed 2.32, or 0.2 percent, to 1,383.61, and the Nasdaq Composite Index rose 13.02, or 0.6 percent, to 2,358.01. About three stocks gained for every two that fell on the New York Stock Exchange.

``It's a friendly Fed, but the market is torn,'' said Dean Gulis, part of a group that manages $3 billion in Bloomfield Hills, Michigan for Loomis Sayles & Co. ``Most people think we're in or on the edge of a recession. That's certainly being discounted to some degree, but not fully.''


Feb. 27 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank ``will act in a timely manner'' to insure against ``downside risks'' to the economy.

``The Federal Open Market Committee will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,'' Bernanke said in semiannual testimony on the economy before the House Financial Services Committee in Washington.

Bernanke's remarks may reinforce investors' expectations that the central bank will lower interest rates further to help a faltering economy. While officials have expressed concern that inflation is accelerating, Bernanke signaled he shares Vice Chairman Donald Kohn's view that financial market turmoil and slowing growth pose the ``greater threat.''

The Fed chief's testimony came as government figures today showed the U.S. economic expansion, now in its seventh year, is increasingly in peril. Durable-goods orders fell 5.3 percent, more than forecast, in January as companies reduced spending. New-home sales fell last month to the lowest level since February 1995 even as prices slid by a record 15 percent from a year ago.

Bernanke referred to ``downside'' risks for the economy four times in his testimony, and noted that data since the last Fed meeting in January pointed to ``sluggish'' growth. Policy choices have also become more complicated as energy and commodity prices rose in recent weeks, he indicated.

Risks to Growth

Risks to the outlook include ``the possibilities that the housing market or the labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further,'' the Fed chairman said.

Traders anticipate the central bank will lower the benchmark rate by at least half a point by the end of the next meeting, on March 18, futures prices show. Officials have lowered the rate by 2.25 percentage points since September, to 3 percent.

A half-point reduction to 2.5 percent would bring the rate adjusted for inflation, less food and energy, to almost zero.

Bernanke, 54, is in the seventh month of a credit crisis that began with rising delinquencies on subprime mortgages, while also grappling with the economic impact of the worst housing recession in a quarter century. Banks are making it tougher to get loans after financial companies posted $162 billion in asset writedowns and credit losses since the beginning of 2007.

Inflation Picks Up

At the same time, inflation is accelerating and the public's expectations for prices may also be rising, Bernanke said. He reiterated remarks from testimony to a Senate hearing Feb. 14 indicating policy makers will increasingly take account of the inflation outlook later in the year as the economy stabilizes.

``Further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month,'' Bernanke said.

In its separate monetary-policy report released with the testimony, the Fed said near-term inflation expectations, measured by surveys, ``rose somewhat in 2007 and early 2008, presumably because of the increase in headline inflation.'' Longer-term expectations ``changed only slightly,'' the Fed report said.

``A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability,'' the Fed chairman said.

Payrolls Drop

Economic reports since the Fed last met on Jan. 29-30 showed the first decline in U.S. payrolls in more than four years in January and a slide in consumer confidence to the lowest level since 2003 this month.

``The economic situation has become distinctly less favorable since the time of our July report,'' Bernanke said. Still, the $168 billion stimulus package enacted by Congress and signed by President George W. Bush this month and continued gains in exports should help growth, he said.

In the semiannual report, the Fed said that the U.S. economy ``seems to have entered 2008 with little momentum.'' Labor demand ``has slowed further of late,'' it said.

The semiannual monetary policy report used to include a twice-a-year set of economic forecasts by Fed governors and district bank presidents. Bernanke last year increased the frequency of the predictions to quarterly, and the latest projections were released Feb. 20 and included in today's report.

Fed Forecasts

The projections showed officials lowered their prediction for economic growth this year by half a point, to 1.3 percent to 2 percent. Economists surveyed by Bloomberg News predict economic growth will slow to a 0.5 percent annualized pace in the first quarter after expanding 0.6 percent in the previous three months.

Fed officials see inflation returning toward their preference range of 1.7 to 2 percent after running at a 2 to 2.2 percent pace this year, minus food and energy.

Bernanke said the forecasts depend in part on a flattening in energy and food prices. Crude oil this month surpassed $100 a barrel for the first time.

Bernanke focused the final pages of his testimony on the Fed's efforts to strengthen consumer protections and prevent foreclosures.

``The Federal Reserve continues to work with financial institutions, public officials, and community groups around the country to help homeowners avoid foreclosures,'' Bernanke said. ``We are actively pursuing other ways to leverage the Federal Reserve's analytical resources, regional presence, and community connections to address this critical issue.''

Democratic Representative Barney Frank, who chairs the House panel, yesterday announced a proposal to provide $35 billion in federal funds to buy homes in foreclosure and offer refinancing for ``distressed'' homeowners.

Frank also proposed expanding the Federal Housing Administration's ability to process and underwrite loans, and increasing funding for homeowner-counseling programs in a document outlining his panel's budget priorities.

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Bernanke said the forecasts depend in part on a flattening in energy and food prices. Crude oil this month surpassed $100 a barrel for the first time.


He'd better get that time travel machine finished, so he can go back and convince Greenspan to get control of the house price bubble that he so cheerfully ignored.

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