NEW YORK (Reuters) - Stocks and the euro rose on Friday after Federal Reserve Chairman Ben Bernanke kept the door open for future monetary easing, although he offered no clear signal of imminent action that markets had hoped for in a much-anticipated speech.
The euro and European shares rose as signs emerged of progress toward a deal to tackle the euro zone's debt crisis.
The dollar dropped to an eight-week low against the euro and two-week low versus the yen after Bernanke said high unemployment is a "grave concern," remarks that reinforced expectations for further stimulus to revive growth.
Bernanke told central bankers in Jackson Hole, Wyoming, that progress in bringing down U.S. unemployment was too slow and that the central bank would act as needed to strengthen the economic recovery.
Investors focused on what he had to say about monetary policy and the stagnation in the U.S. labor market.
Bernanke said the Fed had to weigh the costs and the benefits of further stimulus, but he also downplayed potential risks from unconventional policies. He argued the Fed's asset purchases, known as quantitative easing, had been quite effective at boosting growth and fostering job creation.
"I think when he talks about 'grave concern,' that says it all. Further accommodation is coming, it's just a question of how it manifests itself," said Scott Graham, head of U.S. government bond trading at BMO Capital Markets in Chicago.
The Dow Jones industrial average .DJI was up 107.70 points, or 0.83 percent, at 13,108.41. The Standard & Poor's 500 Index .SPX was up 8.80 points, or 0.63 percent, at 1,408.28. The Nasdaq Composite Index .IXIC was up 20.14 points, or 0.66 percent, at 3,068.85.
In Europe, the FTSEurofirst .FTEU3 of top regional shares closed up 0.5 percent at 1,082.93 in thin trade, erasing the previous session's losses and ending the month almost flat.
MSCI's all-country world equity index .MIWD00000PUS rose 0.6 percent to 322.32.
"The basic problem for investors at this point in time is that everyone knows the Fed considers the current economic performance to be unacceptable, but is it unacceptable enough for them to act today or tomorrow before the election?" said Cary Leahy, senior managing director at Decision Economics in New York.
"I don't think this speech answers that question," he said.
Bernanke said the Fed would provide additional policy accommodation as needed, a remark seen as a somewhat weaker hint of policy easing than the minutes of the Fed's last policy meeting had delivered.
"The market was looking for him to not throw any cold water on the prospects for QE and he didn't throw any cold water on it," said John Canally, investment strategist at LPL Financial in Boston.
"The timing is a little bit iffy, but he didn't come out of the box saying that there has been substantial and sustainable improvement in the economy. Because he didn't do that, I think it's just a matter of time," Canally said.
The August payrolls report is due next Friday, days before the next meeting of the Federal Open Market Committee on September 12-13. Many analysts say there is a strong possibility the Fed will announce a third round of bond-buying at the meeting.
The euro was up 0.6 percent at $1.2576, while the U.S. dollar index .DXY was down 0.6 percent at 81.218.
Investors have hoped that more monetary easing would revive economic growth and support demand for oil, for example.
Brent crude was up $1.61 at $114.26 a barrel, while U.S. crude gained $1.85 to settle at $96.47 a barrel.
U.S. Treasuries yields fell to their lowest levels in three weeks.
Treasury prices rose. The benchmark 10-year U.S. Treasury note was up 16/32 in price to yield 1.5722 percent.
Spot gold prices rose $32.15 to $1,687.60 an ounce.
Editing by Kenneth Barry