NEW YORK U.S. stocks rose on Friday amid optimism a White House-proposed mortgage assistance package could ease liquidity conditions, while government bonds dipped as they lost some of their safe-haven appeal.
President George W. Bush set out measures to help homeowners with subprime mortgages refinance into new loans, but warned that the government's job was not to bail out speculators.
Bush's comments were in concert with remarks earlier by Federal Reserve Chairman Ben Bernanke that it was not the central bank's responsibility to protect lenders and investors who made mistakes.
Opposition to a bailout by the government left the dollar flat, while stock market traders also focused on aspects of Bernanke's speech that appeared to support expectations for an interest rate cut at the Fed's policy meeting in September.
"You could read between the lines that the Fed may ease in September, but I view that any kind of ease would be moderate as the Fed is still suggesting that market solutions are going to be primary," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.
On Wall Street, benchmark indexes surged, led by financial and energy stocks in thin pre-holiday trade. U.S. financial markets are closed for the Labor Day holiday on Monday.
The Dow Jones industrial average was up 151.12 points, or 1.14 percent, at 13,389.85. The Standard & Poor's 500 Index was up 18.32 points, or 1.26 percent, at 1,475.96. The Nasdaq Composite Index was up 29.08 points, or 1.13 percent, at 2,594.38.
BUSH, BERNANKE OVERSHADOW DATA
On the government bond market, economic data showing benign underlying inflationary pressures was overshadowed by Bush and Bernanke's comments.
Treasury debt prices traded lower, but were off early troughs, as investors latched onto Bernanke's remarks that the central bank would act as needed to protect the economy.
That raised optimism the Fed would reduce its overnight lending rate next month.
"The issue really is whether this financial turmoil will spill over to the broader economy. His options are left open. We expect easing in September," said David Sloan, economist at 4Cast in New York.
Benchmark 10-year Treasury notes traded 5/32 lower in price for a yield of 4.53 percent, up from 4.51 percent late on Thursday. Bond yields move inversely to prices.
Sketchy details of Bush's rescue plan left the dollar flat, with investors undecided on its impact on the credit crisis.
"It was a case of selling on the fact," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto. "Bernanke did not say anything too surprising and he was in line with what a few prominent Fed watchers told us to expect."
The dollar index, a gauge of the greenback's performance against a basket of six major currencies, was flat at 80.818. The dollar was mostly unchanged at 115.80 yen after earlier touching session lows around 115.50 yen.
The euro was unchanged on the day at $1.3629.
In Europe, shares ended higher on Bush's proposed plans. The benchmark index, made up of top European shares, ended 1.31 percent higher at 1,535.29 points. Japanese stocks finished up 2.6 percent.
Concern about a tropical wave pushed U.S. crude oil futures higher. On the New York Mercantile Exchange, October crude was up 55 cents, or 0.75 percent, at $73.92 per barrel.
Firmer stocks and a strike at a Papua New Guinea mine pushed U.S. gold futures sharply higher. The most-active gold for December delivery on the COMEX division of the New York Mercantile Exchange jumped $7.80, or 1.16 percent, to $681.7 an ounce.
(Additional reporting by Burton Frierson, Christina Cooke, Nick Olivari, Frank Tang and Robert Gibbons in New York)