U.S. stocks rise as Bernanke soothes investors

By Herbert Lash

NEW YORK (Reuters) - Credit jitters swept global markets on Thursday although U.S. stocks prices pulled out of a swoon that started the prior session after Federal Reserve Chairman Ben Bernanke said officials are focused on stabilizing the financial system.

Oil rose to near $138 a barrel on renewed tensions between Iran and the West, and the threat of a potential strike among oil workers in Brazil.

As credit market worries mounted, interest rates eased on U.S. Treasuries, wiping out the dollar's gains against the euro and trimming gains versus the yen.

Bernanke and Treasury Secretary Henry Paulson told Congress the Fed should get a stronger hand in supervising investment banks to help shield the broader economy from problems like the ones that forced the emergency rescue of investment bank Bear Stearns. Bernanke, in congressional testimony, said authorities are working within their existing authority to settle markets roiled by a credit crunch.

U.S. and euro zone government debt was mixed as investors reacted to each new stock market move, and to fleeting changes in perceptions about the health of the U.S. financial system.

Notable weakness in financial stocks generally supported a flight to safety bid for government debt, but it was vulnerable to any sense of relief, however fleeting. The equity market dropped precipitously at the end of Wednesday's session as credit concerns overwhelmed trading and the Dow fell more than 2 percent to its worst close since August 2006.

"It's a stock market trade again," said John Spinello, Treasury bond strategist at Jefferies & Co. in New York.

Driving the high anxiety was uncertainty over whether U.S. mortgage underwriters Fannie Mae and Freddie Mac would need to raise enormous amounts of new capital.