NEW YORK Global stocks rallied on Monday while the dollar retreated after Federal Reserve Chairman Ben Bernanke said that in order to reduce unemployment, easy monetary policy should stay in place.
The benchmark S&P 500 index closed at its highest level since May 2008.
Bernanke, speaking to the National Association for Business Economics, said accommodative monetary policy would support demand and, over time, drive down long-term unemployment.
His comments supported views that easy monetary policy would remain in place for some time and fanned expectations for more Fed asset purchases. Previous rounds of quantitative easing have weakened the dollar and boosted U.S. and global stocks.
"We are clearly addicted to this highly liquid market, and Bernanke has reassured that it (will) stay up this way," said Kent Engelke, chief economic strategist at Capitol Securities Management.
"The risk trade is definitely on and money is moving out of Treasuries and into risky assets."
Gains in U.S. equities pushed the S&P 500 to a more than 12 percent gain so far this year, setting it on track for its best quarter since 2009. The advance has been fuelled by months of better-than-expected U.S. economic data as investors' focus shifts away from the euro zone debt crisis.
The Dow Jones industrial average .DJI gained 160.90 points, or 1.23 percent, to end at 13,241.63. The Standard & Poor's 500 Index .SPX was up 19.40 points, or 1.39 percent, at 1,416.51. The Nasdaq Composite Index .IXIC was up 54.65 points, or 1.78 percent, at 3,122.57.
The S&P 500 is on track to close its fourth straight month of gains.
Global equities as measured by MSCI .MIWD00000PUS rose 1 percent, the largest jump in the index in two weeks.
The pan-European FTSEurofirst 300 index .FTEU3 ended up 0.89 percent. U.S. dollar denominated Nikkei futures gained 1.1 percent.
Germany could allow two euro zone rescue funds to operate together in an effort to strengthen the region's tools against its debt crisis, a move that further helped revive investor appetite for growth-oriented assets.
U.S. government debt prices snapped a four-day winning streak as fewer worries about Europe reduced bids for lower-risk Treasuries. <US/>
The benchmark 10-year U.S. Treasury note was down 5/32, the yield at 2.2515 percent.
EURO RALLIES BUT CAUTION PERSISTS
The euro hit its highest level against the greenback in more than three weeks. The U.S. currency slid to a more than three-week low against the Swiss franc.
The euro rose as high as $1.3367, its highest level since February 29, according to Reuters data. Against the Swiss franc, the dollar dipped as low as 0.9018, its lowest since March 1.
Disappointing U.S. home sales data reinforced bets on an extended easing stance from the Fed. Contracts to purchase previously owned homes unexpectedly fell in February.
"All this left the market with the nagging thought that the Fed is not quite done with economic stimulus," said Boris Schlossberg, director of FX Research at GFT in Jersey City, New Jersey. "I think they have not in any way, shape or form eliminated that possibility."
Monday's rally notwithstanding, sentiment toward the euro remained cautious as investors worried about the euro zone's troubled economy.
Gold futures prices rose 1.8 percent as the dollar weakened on Bernanke's comments and as the Fed chairman's dovish stance reminded investors about the threat of inflation.
Also supporting risk assets, German business sentiment rose unexpectedly for the fifth month in a row in March, signaling that Europe's largest economy is more resilient than others tied to the euro zone debt crisis.