Bernanke Offers Reassurance on Economy and Banks

Federal Reserve Chairman Ben Bernanke has delivered a message of optimism to Congress, predicting that the recession might end this year and that regulators are not planning to nationalize banks. His reassurance has alleviated some investors' worries about the economy and the banking industry, and the Dow Jones Industrial Average and Standard & Poor's 500 Index have lifted off their lowest levels since 1997. Investors are now hopeful that President Obama will provide specifics about how he plans to stabilize the financial system and further stimulate the economy. Anticipation of his remarks has driven beaten-down financial shares up sharply.

Key Takeaways:

• Bernanke predicted that the economy is likely to continue contracting in the first six months of 2009, but there is a reasonable prospect that the recession will end this year.
• The Fed chief emphasized that a recovery will require getting credit and financial markets to operate normally, and that the government must continue working with ailing banks to bring them back to profitability.
• Bernanke reassured investors that formally nationalizing the banks "just isn't necessary," alleviating concerns about the banking industry.
• The Dow Jones Industrial Average rose 236.16, or 3.32 percent, to 7,350.94 on Tuesday, while the S&P 500 index rose 29.81, or 4.01 percent, to 773.14.
• Investors are hopeful that President Obama's speech tonight will provide specific details about how he plans to stabilize the financial system and further stimulate the economy.
• The Obama administration still has not addressed how exactly it will repair the banking system, with the nation's financial system remaining "zombie-like," according to Nick Kalivas, vice president of financial research at the brokerage MF Global.
• The Treasury Department, the Fed, and other banking regulators have announced that they could convert the government's stock in the banks from preferred shares to common shares.

Statistics:

• 236.16 points: The Dow Jones Industrial Average rose on Tuesday.
• 3.32 percent: The Dow Jones Industrial Average rose on Tuesday.
• 7,350.94: The Dow Jones Industrial Average closed on Tuesday.
• 29.81 points: The S&P 500 index rose on Tuesday.
• 4.01 percent: The S&P 500 index rose on Tuesday.
• 7,350.94: The Dow Jones Industrial Average closed on Tuesday, its highest close since 1997.
• 1997: The last time the Dow Jones Industrial Average and Standard & Poor's 500 Index reached their current lowest levels.

Sources:

• MADLEN READ and TIM PARADIS, THE ASSOCIATED PRESS NEW YORK --