A rising wave of optimism lifted Wall Street on Monday, propelling the Dow Jones industrials up more than 400 points on more signs of a reviving credit market and comments from Federal Reserve Chairman Ben Bernanke. All the major indexes finished with gains of 3 percent or more.
Investors who had sold furiously in recent weeks in response to immobile credit markets became more optimistic as bank-to-bank lending rates eased further. There's also less demand for Treasury bills, another sign that the credit markets are gradually returning to a healthier state. And Bernanke has hinted that the government will take more steps to help the economy.
The improvement in lending rates helped temper concerns that tight credit will contribute to a prolonged recession, but Bernanke still warned that the economy is likely to be "weak for several quarters, and with some risk of a protracted slowdown."
But he also told the House Budget Committee that a fresh round of government moves might help ease the country's economic weakness.
"The market liked what Bernanke had to say, and there were hints that he's leaving the door open for further moves in terms of rate cuts or economic stimulus," said Ryan Larson, head of equity trading at Voyageur Asset Management. "And, with credit easing in slow baby steps, the market has started to realize that this is going to be a process."
Investors were also optimistic about the steady decline in interbank lending rates, which fell for a sixth day Monday.