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NEW YORK (Reuters) - Stocks and the euro rose after three days of losses on Wednesday as U.S. Federal Reserve Chairman Ben Bernanke suggested the central bank could provide more stimulus if the economic recovery falters.
Commodities also climbed, with gold jumping to a record near $1,590 an ounce.
Investors mostly took a respite from worries about Europe's debt crisis, although the problems are far from over. Irish government bond yields hit record highs after Moody's downgraded the country's credit rating to junk on Tuesday. On Wednesday, Fitch Ratings downgraded Greece's debt deeper into junk territory.
Bernanke said the U.S. central bank was ready to ease monetary policy further if the economy weakens and inflation moves lower.
"He didn't say that they would exercise the stimulus, but it is clear that they discussed the issue, and that there are options to take, if necessary," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.
The Fed ended its most recent asset-purchase program in June. Traders said another round of easing would flood the financial system with more money and encourage investors to reach for higher-yielding currencies and assets.
The Fed's "easy money" policies since 2008 have helped bolster stocks. The Standard & Poor's 500 index .SPX is up 95 percent from its March 2009 closing low.
Bernanke noted Fed forecasts for June, which were already revised downward significantly from April, had not incorporated recent data, particularly last Friday's dismal June employment report. That showed job growth grinding to a halt in the last two months.
Bernanke's comments to Congress on the U.S. economy and monetary policy followed Tuesday's release of minutes of the Fed's latest meeting, which suggested the possibility of more stimulus measures.
U.S. stocks rallied more than 1 percent during the session, but ended well off the day's highs.
The Dow Jones industrial average .DJI gained 44.73 points, or 0.36 percent, to end at 12,491.61. The Standard & Poor's 500 Index .SPX rose 4.08 points, or 0.31 percent, to finish at 1,317.72. The Nasdaq Composite Index .IXIC added 15.01 points, or 0.54 percent, to close at 2,796.92.
Surprisingly strong Chinese growth data, which eased fears about a hard landing in the world's second-largest economy, also boosted stocks.
European shares recovered after the previous session's losses, while the euro reversed some of its recent weakness against the dollar.
The FTSEurofirst 300 index .FTEU3 of top European shares rose 0.7 percent to end at 1,099.69. The MSCI world equity index .MIWD00000PUS rose 1.1 percent.
The euro was last at $1.41460, up 1.2 percent for the day and off a four-month low beneath $1.39 hit on Tuesday, though investors were also keeping a wary eye on the European sovereign debt crisis.
"I'd call this a short-term respite," said Firas Askari, head of FX trading at BMO Capital Markets. "If we don't hear anything substantial from Europe by the weekend, people will be back to shorting the euro next week."
The dollar posted its worst performance against a basket of currencies in almost a month. In late afternoon trading, the ICE dollar index .DXY fell 0.86 percent to 75.15 .DXY.
Moody's downgraded Ireland's credit rating to junk status on Tuesday, the latest in a series of blows to European economies struggling to get out from under a huge mountain of debt. The yield on the 10-year Irish bond rose above 14 percent.
The rating agency warned that Ireland would probably need a second bailout. A week ago, Moody's slashed Portugal's rating to junk status with a similar warning.
Investors are also beginning to fear that the euro-zone debt crisis is spreading from the bloc's small economies to the larger ones.
These concerns have rattled financial markets because of the potential impact on banks' profits and liquidity as a result of exposure to troubled euro-zone debt.
European leaders, set to convene an emergency meeting on Friday, have yet to agree on a second Greek bailout.
U.S. Treasuries prices ended little changed as a solid 10-year note auction and lingering fears over the euro-zone crisis offset profit-taking that snapped a three-day advance.
The benchmark 10-year U.S. Treasury note dipped 2/32 in price to 102-1/32 to yield 2.89 percent, up just slightly from 2.88 percent late on Tuesday. In the oil market, futures rose after a government report showed crude stocks fell more than expected last week in the United States. Bernanke's comments also lifted the market.
On the New York Mercantile Exchange, August crude rose 62 cents, or 0.64 percent, to settle at $98.05 a barrel. ICE Brent August crude rose $1.03 to settle at $118.78 a barrel.
Among other commodities, spot gold rose 0.9 percent to $1,578.89 an ounce, after hitting a session high at $1,587.46. U.S. August futures settled up $23.20 at $1,585.50 an ounce.
Gold benefits from additional U.S. monetary easing because such a move would likely weaken the dollar and stir inflation down the road.
Reporting by Caroline Valetkevitch; additional reporting by Jeremy Gaunt, Anirban Nag and Emelia Sithole-Matarise in London; and Steven Johnson, Angela Moon, Frank Tang and Gertrude Chavez-Dreyfuss in New York and Pedro da Costa and Mark Felsenthal in Washington; Editing by Dan Grebler and Jan Paschal