| NEW YORK
NEW YORK U.S. stocks rallied for a second straight day on Wednesday as Federal Reserve Chairman Ben Bernanke reaffirmed his strong support for the Fed's stimulus efforts, while the euro climbed after solid demand at an auction of Italian government debt.
Data on U.S. housing and durable goods added to bullish sentiment in stocks, with the U.S. benchmark S&P 500 rallying more than 1 percent and an index of world stocks up 1 percent.
Bernanke's comments came on his second day of testimony in Congress. His defense on Tuesday of the Fed's monetary stimulus, which eased worries over a possible early retreat from its policy of bond purchases after last week's release of Fed meeting minutes, helped U.S. stocks rebound from their worst decline since November.
On Wednesday, he said the U.S. jobless rate is unlikely to reach more normal levels for several years.
"It doesn't matter what the Fed minutes tell you, he is going to keep refilling the punch bowl until we get unemployment down below 6 percent," said Keith Bliss, senior vice president at Cuttone & Co in New York.
Some markets also were relieved as Italy sold all 6.5 billion euros of the 5- and 10-year bonds offered to investors. It could have chosen to sell less, though it paid more than half a percentage point more in interest than before its election.
Two days after the vote offered no party a majority, markets had been concerned about the country's finances.
Investors fear the strength of the vote for anti-austerity parties in Italy could weaken efforts to reform public finances and labor laws and damage the euro zone's efforts to resolve its three-year old debt crisis.
The euro rose for the first time in three sessions, climbing to $1.3125, up 0.5 percent on the day.
The MSCI world equity index was up 0.8 percent, and the pan-European FTSEurofirst 300 index ended 0.9 percent higher.
The European index was helped by gains in Italy's benchmark index, which jumped 1.8 percent after falling 4.9 percent on Tuesday. A rebound in the benchmark index of Spain, another country that has been a prime worry in the euro zone, also helped.
On Wall Street, the Dow Jones industrial average was up 177.72 points, or 1.28 percent, at 14,077.85. The Standard & Poor's 500 Index was up 20.92 points, or 1.40 percent, at 1,517.86. The Nasdaq Composite Index was up 47.43 points, or 1.52 percent, at 3,177.08.
In response to the financial crisis and deep recession of 2007-2009, the Fed has kept official borrowing costs at effectively zero, and it bought more than $2.5 trillion in mortgage and Treasury securities to keep long-term rates low.
U.S. economic data added to positive sentiment. The January durable goods orders excluding transportation increased 1.9 percent, the largest gain since December 2011, and well above economists' expectations of a 0.2 percent gain. Another report on Wednesday showed that contracts to buy previously owned homes approached a near three-year high last month.
Euro zone struggles with debt r.reuters.com/hyb65p
ECB in graphics (package) link.reuters.com/neg32s
Italy and Spain market overview link.reuters.com/xyq57s
Italian bonds and those of other euro zone countries whose creditworthiness is a focus of concern were helped by Italy's debt sale. Safe-haven German bonds fell before recouping losses.
Italian 10-year yields fell 7 basis points to 4.83 percent in the secondary market while German Bund futures were up 27 basis points on the day at 145.09 after the sale.
Italy and Spain's need to change the shape of their economies, boost growth and reduce debt have been at the heart of the euro zone's troubles for over a year. Fears have eased substantially since the European Central Bank said it would do whatever was necessary to prevent a break-up of the euro.
"The uncertainty in Italy does not bode well for the Italian economy which is going through a tough recession as it is. It does not need yet another stumbling block while trying to recover," said Sean Cotton, vice president and foreign exchange adviser at Bank of the West in San Ramon, California.
GOLD, BRENT RETREAT
In the precious metals market, gold prices fell 1 percent, extending losses as the Wall Street rally prompted bullion investors to take profits after the previous session's gains.
Spot gold was down 1 percent at $1,596.95 an ounce.
Brent crude oil futures for April delivery fell 84 cents to settle at $111.87 a barrel, while U.S. crude oil futures rose by 13 cents to settle at $92.76. Investors weighed expectations that the Fed's stimulus program will be maintained against a sixth straight weekly rise in U.S. crude oil stockpiles.
The safe-haven yen fell against the dollar.
The U.S. dollar last traded at 92.31 yen, up 0.3 percent. The euro stood at 121.14 yen, up 0.8 percent on the day.
The yen has been one of the worst performing major currencies so far this year as investors bet on more aggressive policies from the Bank of Japan to beat deflation, and positioned for more monetary stimulus.
(Additional reporting by Chuck Mikolajczak, Gertrude Chavez-Dreyfuss and Frank Tang in New York and Pedro Nicolaci da Costa in Washington; Editing by Chizu Nomiyama, Dan Grebler and Leslie Adler)