Bernanke: Too Soon to Consider Tapering Bond Buying

Federal Reserve Board Chairman Ben Bernanke testifies during a hearing before the Joint Economic Committee May 22, 2013 on Capitol Hill in Washington, DC.
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Federal Reserve Board Chairman Ben Bernanke testifies during a hearing before the Joint Economic Committee May 22, 2013 on Capitol Hill in Washington, DC.

Federal Reserve Chairman Ben Bernanke's signal that monetary policy will remain loose gave stocks another lift Wednesday, paving the way for many indexes to advance to new record highs.

Following a run of upbeat U.S. economic news, largely related to housing and jobs, there had been talk in the markets that the Fed may soon put a brake on its super-easy monetary policy, which has boosted liquidity in financial markets over the past few years.

The Fed is currently making $85 billion in bond purchases every month to encourage lending and spur the U.S. economic recovery. Though a number of economic indicators have improved, the U.S. economy isn't posting historically high growth rates and unemployment is relatively high above 7 percent despite consistent falls in recent months.

Though Bernanke said that keeping interest rates low for a long time can unbalance the financial system, he warned that a change in policy now would "carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further."

Following his comments to lawmakers in Congress, European and U.S. stock markets pushed sharply higher while the dollar lost some of its shine.

"The upshot for equities intraday is the next green light," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. "Investors have driven the market much higher in 2013 and for want of a better catalyst will use the excuse of a persistent Fed stance to buy again."

In Europe, the FTSE 100 index of leading British shares, which closed Tuesday at its highest level since late 1999, was up 0.8 percent at 6,856, while Germany's DAX rose 0.9 percent to 8,549. The CAC-40 in France was 0.4 percent higher at 4,053.

In the U.S., the Dow Jones industrial average was up 0.7 percent at 15,501 while the broader S&P 500 index rose 0.8 percent to 1,683.

One aspect of the monetary stimulus, which has been replicated by a number of other central banks around the world, including most recently the Bank of Japan, has been to send stock indexes flying despite a patchy recovery from recession in many parts of the world.

Over the past few weeks, a number of the world's main markets, such as the Dow Jones and Germany's DAX have recorded a series of all-time highs, while others such as Japan's Nikkei have hit multi-year highs.

In the currency markets, the dollar kept rising after an initial drop. The euro was trading 0.2 percent lower at $1.29. The dollar was 1.1 percent higher against the Japanese yen, above 103 yen, the highest since October 2008.

Earlier in Asia, stocks rebounded on the back of some similarly dovish comments from the Fed's James Bullard on Tuesday.

Japan's Nikkei 225 index rose 1.6 percent to 15,627.26, its highest close in more than five years. The Bank of Japan concluded a two-day policy meeting without any changes to its aggressive monetary easing stance, as expected, and said the world's third-largest economy is showing signs of picking up.

South Korea's Kospi rose 0.6 percent to 1,993.83 while mainland Chinese shares ended a five-day winning streak, with the Shanghai Composite Index falling 0.1 percent to 2,302.40. The smaller Shenzhen Composite Index lost 0.9 percent to 1,021.40. Hong Kong's Hang Seng, where trading was suspended in the morning due to bad weather, fell 0.5 percent to 23,261.08.

Oil prices remained subdued though, with the benchmark New York rate down $1.03 at $95.15 a barrel.