Stocks fall as Bernanke predicts ‘sluggish’ growth until late 2008

NEW YORK — Wall Street retreated Thursday after Federal Reserve Chairman Ben Bernanke predicted a “sluggish” economy until later in the year and more mortgage-related losses at banks.

Though the Fed chairman’s comments suggested the central bank is still open to further interest-rate reductions, the tone was, as expected, somber. Bernanke said the housing and credit crises have weighed on the economy and curbed hiring. If the job market deteriorates, consumer spending, which is crucial for economic growth, will keep dwindling.

After three strong days on Wall Street, investors found scant encouragement in Bernanke’s testimony and cashed in their gains.

“He was more bearish on the economy than he was before,” said Arthur Hogan, chief market analyst at Jefferies & Co. After this week’s better-than-expected report on January retail sales, investors found Bernanke’s assessment of the economy particularly disheartening.

Government bond prices dropped, pushing up the yield on the benchmark 10-year Treasury note, which moves opposite its price, to 3.83 from 3.73 percent late Wednesday.

Banks fell on Bernanke’s testimony, and on a huge loss at the Switzerland-based bank UBS AG. UBS reported a fourth-quarter net loss of $11.28 billion due to investments in U.S. subprime mortgages. The bank, which posted its first full-year loss in a decade, said it expected more debt problems in 2008.

Wall Street’s decline also reflected its underlying concerns about bond insurers, which are in danger of losing their superior ratings because of bad mortgage debt.