New-home sales dived to a record low in January but stocks rallied as Federal Reserve chief Ben Bernanke eased concerns that the central bank will take the economy off life support too soon.
Bernanke spoke to a House panel as the Commerce Department reported new-home sales sank 11.2% to an annualized 309,000, the lowest since records began in 1963. Analysts expected a small gain to 354,000. That stepped up fears that the housing and broader economic revival could stall as the government and Fed end support.
The central bank last week unnerved investors by raising its largely symbolic discount rate on loans to banks. But Bernanke stressed an ultra-low benchmark fed funds rate is still needed to aid a "nascent" recovery.
The Nasdaq and S&P 500 rose 1% while the Dow gained 0.9%.
"He relieved a little apprehension that the punch bowl is going to leave the party ," said James Grefenstette, a senior portfolio manager at Federated Investors.
The Fed has kept the fed funds rate at a record low near 0% and is purchasing over $1 trillion in mortgage securities to bolster housing. But it plans to end those buys in March and has started to wind down other lending programs.
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