New York: Stocks leapt to one of their biggest gains of the year Monday after Federal Reserve Chairman Ben Bernanke suggested that the economy still needs help to produce faster job growth.
The Dow Jones industrial average, the benchmark Standard & Poor's 500 index, and the Nasdaq composite index all were trading higher in early afternoon trading.
The Dow's gain was enough to erase most of last week's 152-point less for the Dow, its worst showing this year.
At a conference in Arlington, Va., Bernanke said more job gains will probably require more robust demand from Americans and businesses. His remarks suggested the Fed will stick to its plan to keep short-term interest rates near zero.
The economy has added an average of 245,000 jobs a month since December, and unemployment has fallen almost a full percentage point since last summer. Yet Bernanke said the Fed needs to "remain cautious" in deciding its next move.
Dow Jones industrial average, five trading days
Bernanke said he does not expect the unemployment rate to keep falling at the current pace without much stronger growth. As long as inflation remains tame, analysts believe the Fed will hold interest rates down to give the economy more support.
Last week, the optimism that has dominated trading this year was punctured by renewed concerns over Europe's debt crisis and a raft of downbeat economic indicators, particularly out of China.
Much of the attention this week will center on Friday's meeting of eurozone finance ministers. There's growing speculation that Germany is willing to accept an increase in Europe's bailout fund, the European Stability Mechanism, which is due to come into operation this summer.
All 10 industry groups in the S&P 500 rose. Health care companies rose the most, 1.4 percent, followed by banks, up 1.2 percent.
Lions Gate Entertainment (LGF) was among the day's winners on Wall Street. The stock climbed more than 5 percent in morning trading after its movie The Hunger Games made USD 155 million on its opening weekend. By early afternoon, the stock had given up some of those gains but was still up 3 percent to just under 1 percent a share and is up 80percent so far this year.
In Europe, Chancellor Angela Merkel conceded Monday that Germany was open to temporarily boosting the eurozone's financial firewall to 700 billion euro (USD 930 billion) by allowing the 200 billion euro in existing commitments run in parallel to the ESM.
Her suggestion represents a turnaround from Germany, which has so far insisted there was no need to increase the lending capacity of the bailout funds beyond the planned €500 billion, despite uncertainty over the ability of Italy and Spain to pay off their debts.
Markets responded positively to the suggestion, especially if it allows the International Monetary Fund to increase its commitment to supporting Europe's economies, too.
"However temporary or not, it may satisfy the needs of the IMF who have stated that they want to see Europe add more funds before they increase their resources, and in addition it is unlikely that Ms Merkel would need to return to parliament to try and obtain authority to increase the size of the German exposure," said Gary Jenkins, managing director at Swordfish Research.
In Europe, the FTSE 100 index of leading British shares was up 0.7 percent at 5,894 while Germany's DAX rose 1.1 percent to 7,072. The CAC-40 in France was 0.4 percent higher at 3,491.
The euro was buoyant, too, reversing early losses to trade 0.3percent higher at USD 1.3313.
Earlier in Asia, Japan's Nikkei 225 index rose less than 0.1 percent to end at 10,018.24 as the yen slipped against the dollar, helping the country's powerhouse export sector. Hong Kong's Hang Seng Index finished unchanged at 20,668.86.
Mainland Chinese shares were flat too — the benchmark Shanghai Composite Index was less then 0.1 percent higher at 2,350.60 while the smaller Shenzhen Composite Index was unchanged at 952.76.
China will remain at the forefront of investors' attention. Last week, they got fidgety about the scale of the slowdown in China, the world's second largest economy. China's fortunes are important for the global economy as its sky-high growth levels over the past few years have helped cushion the blow from the financial crisis.
They will also be keeping a close watch on developments in oil markets, for fear that rising oil prices, which are near nine-month highs, could derail the global economic recovery. The benchmark New York rate was up 22 cents at USD 107.09 a barrel.