Stocks Close Up After Bernanke Comments

U.S. stocks climbed on Wednesday as oil suffered its biggest drop this year, lending relief to heavy oil consumers, while Federal Reserve Chairman Ben Bernanke stuck to his predicted script that higher interest rates may be needed to curb inflation.

The slide in oil below $58 a barrel helped shares of manufacturer Caterpillar Inc. (CAT) hit a lifetime high for the second straight day, and that drove the blue-chip Dow average to its highest close since June 2001. The stocks of airlines and other transportation providers also climbed.

"A lot of the swing came from oil breaking below $58. A lot of the oil-related stocks like Ford and Continental are being helped," said Victor Pugliese, managing director and head of NY equity trading at First Albany Corp. "Obviously, energy stocks put a little drag on the market. Otherwise, we'd be up a little more."

The Dow Jones industrial average was up 30.58 points, or 0.28 percent, at 11,058.97, after climbing as high as 11,068.74. The Standard & Poor's 500 Index was up 4.47 points, or 0.35 percent, at 1,280.00. The Nasdaq Composite Index was up 14.26 points, or 0.63 percent, at 2,276.43.

Shares of heavy equipment maker Caterpillar, a Dow component, jumped 2 percent, or $1.38, to $71.60, after hitting a high at $71.65, on the New York Stock Exchange.

Shares of Continental Airlines Inc. (CAL) rose 3.9 percent, or 91 cents, to $24.10, while auto maker Ford Motor Co. gained 1 percent, or 8 cents, to $8.38.

Bernanke, presenting his first semiannual monetary policy report to Congress as Fed chairman, affirmed market expectations that he would be vigilant on inflation and would take necessary steps to contain it. The U.S. central bank has raised rates 14 times since June 2004 -- the latest being a quarter-point hike in the fed funds rate in January.

Higher interest rates raise borrowing costs for businesses and put a damper on consumer spending. Interest-rate futures show chances are nearly 90 percent the Fed will raise rates twice more by mid-year.

Bernanke "didn't steer off course much from what the Fed has been doing," Pugliese said. "The latest economic figures are showing the economy is as strong as or stronger than people thought, so even if we get a little more rise in rates, the market should stay positive."

Oil-services stocks were among the biggest drags on the S&P 500 as lead-month crude futures fell $1.92, or 3.2 percent, to settle at $57.60, its lowest since December 27.

Shares of Baker Hughes Inc. (BHI) fell 1.5 percent to $66.17, while Halliburton Co. (HAL) slipped 2.8 percent to $68.61.

Abercrombie & Fitch Co. (ANF) fell 2.1 percent, or $1.45, to $67.33 on the NYSE. The youth-oriented retailer posted a higher quarterly profit but gave a softer-than-expected outlook.

Shares of Merrill Lynch & Co. Inc. (MER) and BlackRock Inc. (BLK) rose after they unveiled the terms of their money management deal, which created one of the world's largest asset management firms.

BlackRock shot up 3.6 percent, or $5.29, to $151.25, off a record high of $161.36.

Merrill Lynch shares were up 0.2 percent, or 14 cents, at $75.30 after climbing to a five-year high of $76 on the NYSE.

Other brokers gained after Merrill lifted its rating on Bear Stearns Cos. (NYSE:BSC - news), added JPMorgan Chase & Co. (JPM) to its "Focus One" list and raised its price targets on Lehman Brothers (LEH) and Goldman Sachs Group Inc. (NYSE:GS - news).

Lehman shares climbed 2.4 percent, or $3.47, to $145.40. Goldman's stock added 2.4 percent, or $3.36, to $145.14 and Bear Stearns shares advanced 1.6 percent, or $2.07, to $131.61. All three stocks touched lifetime highs.

On Nasdaq, Cisco Systems Inc. (CSCO) rose 1.2 percent, or 24 cents, to $19.94. The networking equipment maker bought a 9.7 percent stake in China's top online game operator Shanda Interactive Entertainment (Nasdaq:SNDA - news).

Shanda climbed 3.7 percent, or 56 cents, to $15.80 on Nasdaq.

Trading was active on the NYSE, with about 1.73 billion shares changing hands, above last year's daily average of 1.61 billion, while on Nasdaq, about 1.81 billion shares traded, almost matching last year's daily average.

Advancing stocks outnumbered declining ones by a ratio of 7 to 4 on the NYSE and by about 3 to 2 on Nasdaq.