Bernanke, China soothe investor nerves

New York - Soothing data about China’s economy and comments from Federal Reserve chairperson Ben Bernanke lifted stocks and the euro on Wednesday after three days of declines as investors took a respite from worries about Europe’s debt crisis.

Irish government bond yields hit record highs after a downgrade to junk late on Tuesday, however.

Wall Street stocks opened higher folllowing the China data, and extended gains amid Bernanke’s testimony, in which he said the central bank was ready to ease monetary policy further if the economy weakens and inflation moves lower.

Soon after the opening, the Dow Jones industrial average was up 1.07%, the Standard & Poor’s 500 Index rose 1.01% and the Nasdaq Composite Index was up 1.11%.

The testimony follows minutes of the Fed’s latest meeting which suggested the possibility of more stimulus measures.

European shares recovered after the previous session’s losses, helped by a better-than-expected China second-quarter gross domestic product reading, while the euro reversed some of its recent weakness against the dollar.

The FTSEurofirst 300 index of top European shares was up 0.2%.

Optimism about the global economy gathered pace after data showed China’s economy grew faster than expected in the second quarter, easing fears about a hard landing in the world’s second-largest economy.

The Chinese data was a “Goldilocks scenario where it’s slowing but not slowing enough to cause a crash”,m said John Canally, investment strategist at LPL Financial in Boston.

The euro was last at $1.4050, up 0.5% and off a four-month low beneath $1.39 hit Tuesday, though investors were also keeping a wary eye on the European sovereign debt crisis.

Moody’s downgraded Ireland's credit rating to junk status on Tuesday, the latest in a series of blows to European economies struggling to get out from under a huge debt mountain. The Irish 10-year bond yield rose above 14%.

The rating agency warned that Ireland would probably need a second bailout. A week ago, it slashed Portugal’s rating to junk status with a similar warning.

Investors are also beginning to fear that the eurozone debt crisis is spreading from the bloc’s small economies to the larger ones.

US Treasury debt prices declined as investors took profits from a recent safe haven rally ahead of an auction of 10-year notes and some reduced anxiety over the extent of the eurozone debt crisis.

“We’re seeing a little bit of unwinding of some of the risk-off trades - we’ve been pretty risk averse this week with all of the consternation over what is going on in the eurozone,” said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco, adding: “the market is also setting up for supply today.”

In the oil market, Brent for August rose a cent to $117.76 a barrel.