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NEW YORK (Reuters) - U.S. stocks rallied for a second straight day on Wednesday as Federal Reserve Chairman Ben Bernanke reaffirmed his commitment to the Fed's stimulus efforts, while the euro climbed after solid demand at an auction of Italian government debt.
Robust data on U.S. housing and business spending plans added to bullish sentiment in stocks. The U.S. benchmark S&P 500 posted its best day in nearly two months, while an index of world stocks rose 0.9 percent.
Bernanke's comments came on his second day of testimony in Congress. His defense on Tuesday of the Fed's monetary stimulus, which eased worries over a possible early retreat from its policy of bond purchases after last week's release of Fed meeting minutes, helped U.S. stocks rebound from their worst decline since November.
On Wednesday, he said the U.S. jobless rate is unlikely to reach more normal levels for several years.
"It doesn't matter what the Fed minutes tell you, he is going to keep refilling the punch bowl until we get unemployment down below 6 percent," said Keith Bliss, senior vice president at Cuttone & Co in New York.
Some markets also were relieved as Italy sold all 6.5 billion euros of the 5- and 10-year bonds offered to investors. It could have chosen to sell less, though it paid more than half a percentage point more in interest than before its election.
Two days after the Italian vote offered no party a majority, markets had been concerned about the country's finances. Investors fear the strength of the vote for anti-austerity parties in Italy could weaken efforts to reform public finances and labor laws and damage the euro zone's efforts to resolve its three-year old debt crisis.
The auction's demand bolstered the euro, which last traded at $1.3145, up 0.6 percent on the day. The euro stood at 121.12 yen, up 0.8 percent.
On Wall Street, the Dow Jones industrial average .DJI rose 175.24 points, or 1.26 percent, to end at 14,075.37. The Standard & Poor's 500 Index .SPX was up 19.05 points, or 1.27 percent, at 1,515.99, its best daily percentage gain since January 2. The Nasdaq Composite Index .IXIC was up 32.61 points, or 1.04 percent, at 3,162.26.
U.S. economic data added to positive sentiment. A gauge of planned U.S. business spending recorded its largest increase in just over a year in January. Orders for capital goods, excluding defense-related items and aircraft, a closely watched proxy for business spending plans, jumped 6.3 percent, the biggest gain since December 2011.
Another report on Wednesday showed that contracts to buy previously owned homes approached a near three-year high last month.
The MSCI world equity index .MIWD00000PUS was up 0.9 percent, and the pan-European FTSEurofirst 300 index .FTEU3 ended 0.9 percent higher.
The European index was helped by gains in Italy's benchmark index .FTMIB, which jumped 1.8 percent after falling 4.9 percent on Tuesday. A rebound in the benchmark index of Spain, another country that has been a prime worry in the euro zone, also helped.
The commitment to a stimulative monetary policy reiterated by Bernanke sent safe-haven U.S. bonds lower.
In response to the financial crisis and deep recession of 2007-2009, the Fed has kept official borrowing costs at effectively zero, and it has bought more than $2.5 trillion in mortgage and Treasury securities to keep long-term rates low.
Benchmark 10-year Treasuries were last down 5/32 in price, their yields at 1.90 percent compared with 1.89 percent late on Tuesday.
"The basic story today was a return to risk on with a sharp increase in equities pulling the bid from Treasuries," said John Canavan, market analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.
In the precious metals market, gold prices fell as the Wall Street rally prompted bullion investors to take profits after the previous session's gains.
Spot gold was down 1.1 percent to $1,595.71 an ounce.
Brent crude oil futures for April delivery fell 84 cents to settle at $111.87 a barrel. U.S. crude oil futures rose by 13 cents to settle at $92.76. Data showed a sixth straight weekly rise in U.S. crude oil stockpiles.
Additional reporting by Chuck Mikolajczak, Ellen Freilich and Frank Tang in New York; Editing by Chizu Nomiyama, Dan Grebler and Leslie Adler