U.S. stocks, bonds ease on Bernanke, Greece

By Manuela Badawy

NEW YORK (BestGrowthStock) – U.S. stocks (Read more about the stock market today. ) edged lower and prices of Treasuries fell on Wednesday as comments by Federal Reserve Chairman Ben Bernanke’s on the U.S. central bank’s strategy as the economy recovers sparked investor jitters.

The euro fell (Read more about the trembling euro. ) against the dollar amid uncertainty a day before a European Union summit about a possible bailout of debt-stricken Greece. News of a possible rescue plan for Greece, however, helped temper the impact of Bernanke’s comments on Wall Street.

In Europe shares closed higher on the hopes of a rescue plan for Greece.

The chairman of the Eurogroup as well as France and German representatives were set to present a plan to aid Greece on Thursday.

“Expectations are running high that some sort of ‘Greece bailout’ package will be confirmed, leaving room for disappointment if politics get in the way and a comprehensive financial assistance package does not materialize,” said Nick Chamie, global head of emerging market research at RBC Capital Markets.

Markets initially reacted negatively to Bernanke’s comments, with investors jittery that a withdrawal of some of the more than $1 trillion the Federal Reserve has put into the economy, which has underpinned the markets’ rally since last March, might come to an end sooner rather than later. But investors later took a more moderate view.

“A little tone that interest rates might go up some time spooked investors a little bit in the morning,” said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm in Toledo, Ohio.

“I think we could have been down more,” he said, adding that the news on Greece alleviated “one of the clouds that have been hanging over the market.”

The Dow Jones industrial average (.DJI: ) closed down 0.20 percent, at 10,038.38. The Standard & Poor’s 500 Index (.SPX: ) ended down 0.22 percent, at 1,068.13. The Nasdaq Composite Index (.IXIC: ) closed down 0.14 percent, at 2,147.87.

Bernanke said in written remarks on Wednesday the U.S. central bank expects to increase the spread between the discount rate and the target fed funds rate.

Bernanke’s remarks on the discount rate drove up the dollar against the euro, boosting expectations the U.S. central bank would start tightening monetary policy earlier than its major counterparts. Bernanke made clear the time for tightening monetary policy was still some ways away.

The euro fell (Read more about the trembling euro. ) 0.45 percent at $1.3727.

The news on Greece also put pressure on the euro, with some analysts unconvinced that a bailout, if there were one, would solve all of Greece’s problems.

Against the yen, the dollar rose 0.36 percent at 89.97 despite a wider-than-expected report on U.S. trade deficit in December.

The dollar rose against a basket of major trading-partner currencies, with the U.S. dollar index (Read more about the global trade. ) (.DXY: ) up 0.27 percent at 80.078.

In the government debt market, U.S. bond prices were also hurt by a poor reception in the sale of $25 billion of 10-year notes, stirring concerns the appetite for huge waves of government debt may be dwindling.

The benchmark 10-year U.S. Treasury note fell 10/32, with the yield at 3.6916 percent from 3.65 percent on Tuesday, while the two-year note was 3/32 lower to yield 0.89 percent from 0.84 percent.

Bernanke’s testimony had set the bearish tone for bonds early in the day.

MIXED NUMBERS

European shares closed higher on hopes of a possible rescue plan for Greece, with banks stronger, but gains were pared after Bernanke outlined fiscal tightening plans.

The FTSEurofirst 300 index (.FTEU3: ) of top European shares rose for a third day, closing 0.6 percent up at 987.13 points, down from the day’s high of 996.12.

The index is up 52.9 percent from its lifetime low of March 9, 2009, but is down 8.1 percent from a 15-month high it reached on Jan 11.

Oil prices rose after the U.S. Energy Information Administration raised its forecast for crude demand and prices this year.

Crude oil settled up 77 cents, or 1.04 percent at $74.52 a barrel, rising for the third consecutive day during which it has gained a total $3.33, or 4.68 percent.

Gold prices eased 0.40 percent to $1072.6 on the back of stronger U.S. dollar.

The Reuters/Jefferies CRB Index (.CRB: ), a benchmark basket of 19 futures, was up 0.42 percent, at 266.23.

World equities as measured by the MSCI All-Country World Index (.MIWD00000PUS: ) ended flat.

Stock Investing

(Additional reporting by Caroline Valtkevitch, Gertrude Chavez-Dreyfuss; Editing by Leslie Adler)

U.S. stocks (Read more about the stock market today. ), bonds ease on Bernanke, Greece