Investors find no sign of QE3 from Bernanke

THE S&P 500 ended barely changed yesterday as optimism about China’s interest-rate cut was offset by Federal Reserve chairman Ben Bernanke’s comments that dimmed hopes for more US stimulus.

Both the Dow industrials and the Nasdaq ended off session highs, with the Dow rising modestly for the day and the Nasdaq slipping.

Stocks lost ground following Bernanke’s comments a day after experiencing the best one-day rally so far this year. Over the previous three days, the S&P 500 gained 2.9 per cent, recovering some of May’s losses.

The surprising move by China’s central bank to cut its benchmark interest rate by 25 basis points helped ease worries about faltering global demand.

Speculation has been rising that central banks will take more action to combat escalating debt problems in Europe and slower global growth. Bernanke, in testimony yesterday, said the Fed was ready to take action but gave no hint of imminent steps.

His remarks were seen as offsetting more supportive comments from other Fed members in the last 24 hours, but still leaving the door open for more action at the Fed’s next meeting on 20 June.

“Bernanke threw traders a curveball. After his vice chair made it seem like QE was a foregone conclusion, he really messed people up. We tried to shake that off, but there was a lack of follow-through and we lost momentum,” said Phil Flynn, senior market analyst with PFG Best in Chicago.

The rate cut in China, the world’s second biggest economy, helped lift the stocks of US companies linked to China’s commodity-hungry industrial complex.

An S&P index of industrial shares gained 0.6 per cent and an S&P materials index rose 0.2 per cent.

The Dow Jones industrial average advanced 46.17 points, or 0.37 per cent, to 12,460.96 at the close. The Standard & Poor’s 500 Index edged down 0.14 of a point, or 0.01 per cent, to 1,314.99. The Nasdaq Composite Index slipped 13.70 points, or 0.48 per cent, to close at 2,831.02.

US stocks jumped more than two per cent on Wednesday, a third day of gains for the S&P 500. The index has rebounded since hitting its 200-day moving average, a key technical support level, last Friday.

The S&P 500 is still well off its highs for the year.

While Europe was still very much in the spotlight, stocks showed little reaction to a downgrade by Fitch in Spain’s credit rating to BBB with a negative outlook, just two notches away from junk status.

Germany’s government and main opposition agreed on the outlines of a proposal for a European financial transaction tax, which could pave the way for parliament to approve a fiscal pact and permanent rescue plan for the Eurozone.