Bernanke testimony drives US stocks lower

NEW YORK -- Wall Street pulled back Wednesday after Federal Reserve Chairman Ben Bernanke told Congress the economy may weaken in the first half of the year, a trend that would mean the U.S. is in a recession.

Bernanke's prepared testimony to Congress' Joint Economic Committee was viewed as the closest he has come to suggesting the possibility of a recession caused by tightening credit markets, a slumping housing industry, and recent problems in the financial sector.

The Fed chairman also offered no assurances of further interest rate cuts this year, and that likely disappointed some investors, leading them to start collecting profits from Tuesday's huge gain.

The market began the second quarter with a big rally, sending the Dow Jones industrials up nearly 400 points, on renewed confidence the worst of the credit crisis was over. But, there is still great uncertainty about the economy ¡X and Bernanke's hinting at a recession was unnerving to the market, which last week gave up ground on worries that consumers were cutting back on their spending.

Still, after such a big advance, some profit-taking was also to be expected. In midmorning trading, the Dow Jones industrials fell 33.14, or 0.26 percent, to 12,621.22.

Broader indexes also dipped. The Standard & Poor's 500 index fell 3.02, or 0.22 percent, to 1,367.16; and the Nasdaq composite index fell 3.02, or 0.13 percent, to 2,359.73.

Treasury bonds, which are considered safe during times of recession, stalled as Bernanke was giving comments before Congress. The 10-year Treasury note's yield, which moves opposite its price, was unchanged from late Tuesday's 3.55 percent.

Oil prices were steady, with a barrel of light sweet crude up 20 cents at $101.18 on the New York Mercantile Exchange. The dollar was mixed against other major currencies, while gold fell slightly.

Though numerous economists have said they believe a recession is under way, Fed officials generally are cautious when describing the economy. A recession consists of at least two consecutive quarters of economic contraction and can only be declared in hindsight.

Bernanke outlined some of the steps taken in the past few weeks to help boost the financial positions of the nation's biggest investment banks. He offered that a failure of Bear Stearns Cos. would have been difficult to contain, and that was one reason why the Fed orchestrated the investment bank's sale to JPMorgan Chase & Co. last month.

Investors also weighed fresh economic data that indicated factory orders in the U.S. have fallen for a second straight month. The Commerce Department said orders dropped by 1.3 percent in February, about double the downturn that economists had been expecting.

In corporate news, Best Buy Co. said its fourth-quarter profit slipped 3 percent as customer traffic slowed after the holidays. But, the electronics retailer still beat Wall Street estimates, and shares rose $1.71, or 4 percent, to $45.18.

The Russell 2000 index of smaller companies declined 2.24, or 0.32 percent, to 708.41.

Declining issues barely outpaced advancers on the New York Stock Exchange, where volume came to 127.8 million shares.

Overseas, Tokyo's Nikkei index closed up 4.21 percent. There were gains on European bourses too, with London's FTSE 100 rising 0.08 percent, Frankfurt's DAX advancing 0.31 percent and Paris' CAC 40 gaining 0.23 percent.

(Agencies)