Dow, S&P rise as Bernanke defends policy, warns on cuts

NEW YORK (Reuters) - Stocks mostly rose on Tuesday after Federal Reserve Chairman Ben Bernanke defended the Fed's bond-buying stimulus before Congress, but warned forced spending cuts that could be triggered this week represented a headwind for the economy.

Gains in homebuilders and other consumer stocks, following strong economic data, kept the S&P 500 nearly unchanged, while a 5 percent jump in Home Depot lifted the Dow industrials. The PHLX housing sector index <.hgx> rose 2 percent.

Stocks hit session highs shortly after Bernanke, in testimony before the Senate Banking Committee, strongly defended the Fed's bond-buying stimulus program that has been essential for the stock market's recovery.

However, he also urged lawmakers to avoid sharp spending cuts set to go into effect on Friday, which he warned could combine with earlier tax increases to create a "significant headwind" for the economic recovery.

"He really came down foursquare on the bearish camp with respect to the potential economic impact of these cuts. That's a surprise, and that's probably why the market's a little nervous right now," said Michael Jones, chief investment officer of Riverfront Investment Group in Richmond, Virginia.

The Dow Jones industrial average <.dji> rose 74.64 points or 0.54 percent to 13,858.81. The S&P 500 <.spx> gained 1.78 points or 0.12 percent to 1,489.63. The Nasdaq Composite <.ixic> dropped 5.84 points or 0.19 percent to 3,110.41.

The S&P 500 failed to move above 1,500, a closely watched level that was technical support until recently, but could now become a hurdle.

Cable network AMC Networks was the Nasdaq's biggest percentage decliner after the home of popular shows such as "The Walking Dead" and "Mad Men" reported a quarterly profit way below analysts' estimates. Its stock fell 7.4 percent to $53.77.

Equities continued to be weighed by concerns about a stalemate in Italy after a general election failed to give any party a parliamentary majority, posing the threat of prolonged instability and European financial crisis.

The FTSEurofirst-300 index of top European shares <.fteu3> unofficially closed down 1.3 percent at 1,150.58. The benchmark Italian index <.ftmib> tumbled 4.9 percent.

Dow component Home Depot Inc was the top gainer in both the Dow and the S&P 500 after the world's largest home improvement chain reported adjusted earnings and sales that beat expectations. Home Depot's shares jumped 5.5 percent to $67.46.

Macy's Inc shares climbed 2.8 percent to $39.60 after the department-store chain stated it expects full-year earnings to be above analysts' forecasts because of strong holiday sales.

Economic reports that showed strength in housing and consumer confidence also supported stocks.

U.S. home prices rose more than expected in December, according to the S&P/Case-Shiller index. Consumer confidence rebounded in February, jumping more than expected, and new-home sales rose to their highest in 4-1/2 years.

(Reporting by Rodrigo Campos; Additional reporting by Sam Forgione; Editing by Jan Paschal)

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