NEW YORK â€" Stocks got a early boost Thursday from China's efforts to spur its economy, but reversed direction in the last hour of trading. Highly anticipated testimony from Federal Reserve Chairman Ben Bernanke turned out to be a nonevent.
Matthews, AP
Bernard Wheeler, left, of Knight Capital, and John Panin of JNK Securities, work on the floor of the New York Stock Exchange on Wednesday, June 6, 2012.
Matthews, AP
Bernard Wheeler, left, of Knight Capital, and John Panin of JNK Securities, work on the floor of the New York Stock Exchange on Wednesday, June 6, 2012.
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The Dow Jones industrual average rose 32 points to 12,447, according to preliminary calculations. The Standard & Poor's 500 index fell a point to 1,313. The Nasdaq composite fell 15 points to 2,829.
China cut its benchmark lending rate by a quarter percentage point to 6.31%, first cut since 2008, to support growth in its cooling economy, the world's second-largest.
The move is the strongest sign yet that authorities in Beijing are determined to avoid a sharp slowdown. Chinese economic growth has been one of the pillars of the global economy in recent years, so the move boosted sentiment in financial markets worldwide.
"Markets received a near-term shot of adrenalin from China," said Matthew Kaufler, portfolio manager at mutual fund group Federated Investors. "China is the world's economic locomotive at the moment and it can't afford to slow down at a time when other major economies are in precarious positions."
Stock trend
Dow Jones industrial average, five trading days
Beijing has rolled out a series of measures to stimulate its economy after growth fell to a nearly three-year low of 8.1% in the first quarter and April factory output grew at its slowest rate since the 2008 crisis. Private sector analysts expect this quarter's growth to fall further.
Industrial stocks that rely heavily on the Chinese market for sales were among the biggest gainers on the New York Stock Exchange. Heavy equipment maker Caterpillar (CAT) rose $1.17 to $87.83, one of the biggest gains among the 30 stocks that make up the Dow.
The stock market pulled back a little from earlier gains after Bernanke said that the Fed remains ready to act if the economy needs it, but he didn't say any new steps were on the way.
"As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate," Bernanke told the congressional Joint Economic Committee Thursday.
Investors have been worried because a bleaker view of the economy has taken hold in recent weeks, especially as hiring has weakened. U.S. employers added just 69,000 jobs in May, the fewest in a year. Since averaging a robust 252,000 a month from December through February, job growth has slowed to a lackluster 96,000 a month. The U.S. economy grew at a tepid annual rate of 1.9% in the first three months of 2012.
Some traders had hoped for more from Bernanke after Dennis Lockhart, the president of the Fed's Atlanta bank, said Wednesday that sustained weakness in job creation could justify more action to support the economic recovery.
Lockhart's comments helped fuel the biggest gain of the year for U.S. stocks, including a 286-point leap in the Dow.
But Bernanke's performance Thursday was "anticlimactic," said Charles Bobrinskoy, vice chairman and director of research at Ariel Investments. "He was mildly negative about the economy but not enough for any action now."
Investors will now wait to see what the Fed says when it concludes its next policy meeting June 20.
Bernanke "wasn't in a position to say much except leave the door open for later," said Michelle Girard, senior U.S. economist with Royal Bank of Scotland.
Girard said she believes the Fed may extend a program called Operation Twist, in which it sells short-term securities and buys long-term bonds to drive down long-term interest rates, for a few months. It is set to expire at the end of this month.
Investor fear has grown recently that Greece will leave the euro currency union, triggering a financial a panic in Europe and dragging down the rest of the world economy.
Some fear over Europe was allayed Thursday when Spain raised $2.6 billion from the bond market. The interest rate on its benchmark 10-year note fell to 6.02% from 6.26% late Wednesday in trading on the secondary market, a sign that bond investors have more confidence in Spain's finances.
Germany's DAX closed 0.8% higher at 6,144.22 while France's CAC-40 rose 0.4% to 3,071.16. Britain's FTSE 100 gained 1.2% to 5,447.79. Madrid's Ibex was up 0.3% , while its 10-year bond yield slumped to 6.04% from 6.30% before the bond auction results.
Spain's government cannot afford to rescue its banking sector but is reluctant to accept a full-fledged bailout from its eurozone partners, as that would mean giving up control over some of its domestic policies.
Investors hope that European officials will agree to a compromise solution â€" giving Madrid the money but reassuring it that it will not have to take harsh new austerity measures.
"There is speculation that EU officials are coordinating some form of support for Spain, especially for its banking sector, but details of what this will entail is lacking," said Mitul Kotecha, analyst at Credit Agricole CIB.
The improved market sentiment also helped the euro, which rose to $1.2562 from $1.2546 late Wednesday in New York
Earlier in Asia, stock indexes had closed higher. Japan's Nikkei 225 index added 1.2% to 8,639.72, Hong Kong's Hang Seng gained 0.9% to 18,678.29 and South Korea's Kospi index jumped 2.6% to 1,847.95.
Australia's S&P/ASX 200 climbed 1.3% to 4,108.60. Benchmarks in New Zealand, Taiwan and Indonesia also rose, but those in mainland China and Singapore fell.
Benchmark oil for July delivery was up 30 cents to $85.32 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 73 cents to settle at $85.02 in New York on Wednesday.
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