Stocks take flight after Yellen vows continuity

NEW YORK - The dollar and global equity markets rallied on Tuesday after Federal Reserve Chair Janet Yellen said she expects the U.S. central bank to continue trimming its bond purchases, a sign the Fed believes the economy is on track for further growth.

Stock indices on Wall Street surged more than 1 percent while the U.S. currency rebounded against the euro and gained against the yen after Yellen's testimony before the House Financial Services Committee.

The Dow Jones industrial average rose 193 points, or 1.2 percent, to close at 15,995. The benchmark S&P 500, which gained nearly 20 points to 1,820, has posted its best four-day performance in 13 months, gaining almost 4 percent. The index is now within 1.5 percentage points of its all-time high reached a month ago. The Nasdaq composite index also rose on the day.

Yellen said recent volatility in global financial markets did "not pose a substantial risk to the U.S. economic outlook" and reiterated that the Fed was on track to keep scaling back its economic stimulus.

A potential market headwind also appeared to be removed after Republican leaders in the U.S. House of Representatives agreed to advance legislation that extends Washington's borrowing authority for a year without conditions.

A vote expected late Tuesday would mark a dramatic shift from the confrontational fiscal tactics House Republicans have used over the past three years, culminating in last October's 16-day shutdown of the federal government in Washington.

Stocks in Europe, emerging markets and Canada also rallied as Yellen emphasized continuity in the Fed's policy, saying she strongly supports the tact of her predecessor, Ben Bernanke.

"The last thing she wants to do at this point is complicate things or muddy a well-established message. 'Do no harm' is her motto unless the data changes more than we have seen so far," said Brad McMillan, chief investment officer at Commonwealth Financial in Waltham, Mass.

MSCI's all-country world index, which measures stock performance in 45 countries, and its emerging markets index both gained 1.1 percent.

In Europe, the FTSEurofirst 300 index of leading regional shares closed up 1.25 percent at 1,317.30. Stock markets in Brazil and Mexico jumped more than 1.5 percent, while Bay Street in Toronto rose 0.93 percent.

"'Stay the course' is in my opinion the message the Street wanted to hear," said Phil Orlando, chief equity strategist at Federated Investors in New York. "The Fed believes these weather issues, these (emerging market) issues are transitory and we are in a sustainable growth path for U.S. GDP."