By BERNARD CONDON and STEPHEN BERNARD
NEW YORK (AP) -- Stocks fell sharply Wednesday after Federal Reserve Chairman Ben Bernanke confirmed investors' fears that the economy has weakened. Interest rates dropped in the Treasury market as investors sought safer places for their money.
Bernanke told a congressional committee that the economy is "unusually uncertain." He said the economy is fragile, but he did not forecast that it would fall back into recession.
The Dow Jones industrial average, which was modestly higher before Bernanke's prepared remarks, fell 109 points as investors absorbed his assessment of the economy, and his statement that the Fed is ready to take action if the economy worsens.
Bernanke's comments, part of his semiannual report to Congress, weren't surprising given the disappointing economic reports and corporate earnings numbers released in recent weeks. But they were enough to upset investors who have grown increasingly nervous about the state of the recovery. Some investors may have been hoping for a more upbeat reading from the Fed chairman.
The Fed is still expecting the economy to expand this year, but the central bank has lowered its forecast for growth.
Oliver Pursche, executive vice president at Gary Goldberg Financial Services, said investors took Bernanke's comments as "not exactly a ra-ra USA type of endorsement."
Craig Peckham, market strategist at Jefferies & Co., said stocks fell not because of anything Bernanke said, but what he didn't say about any plans to stimulate the economy. Although Bernanke said the Fed was "prepared to take further policy actions as needed," he also said, "we are not prepared to take any specific steps in the near term" because the Fed is still evaluating the economy.
Peckham said, "The market expected that we'd see more sign of monetary easing in the testimony. But that didn't happen." Monetary easing would include steps to make credit more available or encourage banks to lend more.
The market fluctuated for much of the day on another mixed batch of earnings reports. John Merrill, chief investment officer of Tanglewood Wealth Management in Houston said the day was like many others recently: Very little news but lots of professional traders reacting to it.
"Bernanke said he wants to collect more data before doing anything, and that's just fine. But traders are impatient. They got a 'buy' button and a 'sell' button and they're going to do do one or the other," Merrill said.
The Dow fell 109.43, or 1.1 percent, to 10,120.53. The broader Standard & Poor's 500 index fell 13.89, or 1.3 percent, to 1,069.59. The Nasdaq composite index lost 35.16, or 1.6 percent, and fell to 2,187.33.
Two stocks fell for every one that rose on the New York Stock Exchange. Consolidated volume came to 4.8 billion shares, up from Tuesday's 4.7 billion.
Treasury prices surged and their yields fell as investors sought out the safety of government debt after Bernanke's testimony. The yield on the benchmark 10-year Treasury note, which helps set rates on mortgages and other kinds of loans, fell to 2.88 percent from 2.96 percent late Tuesday.
Investors have been selling stocks since late April on a combination of weak economic indicators and disappointing earnings reports. The Dow, which reached a 2010 high of 11,205.03 on April 26, has fallen 10 percent as investors have seized on any piece of bad news and shrugged off more positive signs about the economy.
In the past few days, companies' revenue figures have become a culprit. Although companies including IBM Corp. and General Electric Co. have beat analysts' second-quarter earnings estimates, their revenue has not met expectations and investors have been selling. The belief in the market is that companies aren't getting the strong sales needed to fuel the economic recovery.
"The numbers aren't bleak but there's no top-line growth, and that's scaring people. There's a realization that the economy is stuck in slow growth for a year or two," said Brian Wenzinger, a portfolio manager at Aronson-Johnson-Ortiz in Philadelphia.
Stocks fell across the market Wednesday. Of the few stocks in the S&P 500 that rose, most were companies that had upbeat earnings news Wednesday or late Tuesday.
Morgan Stanley rose $1.58, or 6.3 percent, to $26.80, after its second-earnings were better than expected. The investment bank weather the stock market's difficult quarter better than some of its competitors. Another banker, Wells Fargo & Co., rose 15 cents, or 0.6 percent, to $26.06, after also surpassing expectations.
Coca-Cola Co. rose 84 cents, or 1.6 percent, to $54.08 after saying its North American soft drink sales stopped falling during the April-June period.
Thursday's earnings reports include some from companies seen as measures of how the overall economy is faring: United Parcel Service Inc., Microsoft Corp. and Caterpillar Inc.
Copyright 2010 The Associated Press.