Wall Street Pauses after Bernanke's Comments

NEW YORK, Nov. 21 -- U.S. stocks ended flat on Tuesday after the Federal Reserve Chairman Ben Bernanke warned that the central bank lacks the tools to cushion the economy from the impact of the "fiscal cliff."

When the market closed, the Dow Jones industrial average dipped 7.45 points, or 0.06 percent, to 12,788.51. The Standard & Poor's 500 added 0.93 points, or 0.07 percent, to 1,387.82. The Nasdaq Composite Index edged up 0.61 points, or 0.02 percent, to 2,916.68.

Stocks staged a sharp rally in last two sessions, boosted by positive comments from congressional leaders, which make investors confident that a deal will be reached to avert the fiscal disaster, a combination of automatic spending cuts and spikes in tax rates that could dragged the U.S. economy into a severe recession.

However, enthusiasm faded after Bernanke's warning about the dire consequences of the looming "fiscal cliff".

"The realization of all of the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the recovery," Bernanke said. "A fiscal shock of that size would send the economy toppling back into recession." According to Bernanke, in the worst case scenario where the economy goes off the broad fiscal cliff, the Fed does not have the tools to offset that.

Adding to the pressure, Moody's Investors Service downgraded France's government bond rating by one notch from Aaa to Aa1, and maintained the negative outlook.

The agency said France's long-term economic growth outlook was affected by multiple structural challenges and its fiscal outlook was uncertain as a result of its deteriorating economic prospects.

On the economic front, the Commerce Department said the U.S. privately-owned housing starts in October were at a seasonally adjusted annual rate of 894,000, a 3.6-percent increase over September.

The data, combining with earlier reports on the housing market, signaled the most-battered sector was gradually bottoming out.

Among stocks in focus, Hewlett-Packard slumped nearly 12 percent after the company's results fell short of Wall Street expectations, including a huge accounting charge relating to allegations of fraud.

In other markets, the U.S. dollar strengthened against most major currencies on Tuesday as euro-zone financial ministers met to discuss Greece's bailout.

Crude prices Tuesday tumbled as a Hamas official said a Gaza cease-fire had been agreed with Israel, which eased markets' previous concerns about oil supplies in the Middle East.

Light, sweet crude for January delivery lost 2.53 dollars, or 2. 83 percent to settle at 86.75 dollars a barrel on the New York Mercantile Exchange.