World markets higher on expectations of Bernanke speech Thursday

Wednesday, August 24th 2011 - 06:47 UTC

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The Fed chairman could announce a new ‘stimulus shot’ to the US economy

US stocks shot 3% higher on Tuesday on speculation Federal Reserve Chairman Ben Bernanke this week could signal new help for the US economy, giving investors hope a four-week rout was nearing an end.

The Dow Jones industrial average was up 322.11 points, or 2.97%, at 11,176.76. The Standard & Poor's 500 Index was up 38.53 points, or 3.43%, at 1,162.35. The Nasdaq Composite Index was up 100.68 points, or 4.29%, at 2,446.06.

European shares extended their low-volume bounce into a second day, led by demand for defensive stocks and investor hopes for a further easing of US monetary policy, although tepid economic data did little to allay fears of recession.

The index's intraday journey, however, showed a marked lack of conviction among bulls, with volatile trade once again the name of the game and the FTS-Eurofirst 300 moved in a 23 point range over the session.

The Nikkei average rose more than 1%, rebounding from a sharp drop the previous day, as appetite for domestic-demand shares such as food makers and paper firms offset concerns about the economies of key export markets and the impact of a strong yen.

The benchmark Nikkei climbed 1.2% to 8,733.01, while the broader Topix index rose 1% to 750.39.

Bernanke, who will speak Aug. 26 in Jackson Hole, Wyoming, told Congress last month the Fed's options include increasing the average maturity of its bond portfolio and cutting the interest rate on excess reserves as well as buying additional debt and keeping rates low.

The Fed may sell shorter-term securities held in its portfolio and buy longer-term debt to help stimulate the economy, Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG, said in an interview on “Surveillance Midday” with Tom Keene. The idea has been called “operation twist” after a similar effort in the 1960s.

The move wouldn't expand the Fed's balance sheet, as additional asset purchases would. The central bank bought 2.35 trillion dollars in debt in two rounds of purchases in a strategy called quantitative easing.

Bernanke's scheduled appearance at the Kansas City Fed's annual economic conference in Jackson Hole comes as U.S. manufacturing weakens, consumer confidence tumbles and the unemployment rate holds above 9%.