U.S. equity markets rallied Tuesday after Fed Chairman Ben Bernanke talked down the idea of nationalizing troubled banks during the question and answer period following his prepared testimony before the Senate Banking Committee.


I don't see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when that just isn't necessary, Mr. Bernanke told Senators.


Citigroup and Bank of America, whose shares have been pummeled recently amid speculation about possible government takeovers, rose 14.95% and 19.82% respectively after Bernanke spoke. The XLF financial sector ETF gained 11.00% on relatively heavy volume.


Mr. Bernanke also provided more information regarding the government's new stress-tests, saying that the government’s bank-capitalization plan is designed to shore up lenders’ common equity only if the economy worsens and creates more losses for financial institutions.


The Treasury will buy convertible preferred stock as needed in the 19 largest U.S. banks only after such tests determine how much capital is needed to address losses in a “worst case scenario. Mr. Bernanke said non-voting preferreds will be converted to common only as extraordinary losses happen, if they do.


“It doesn’t have an ownership implication until such time as those losses which are forecast in the bad scenario actually occur,” he said.


President Obama will address a joint session of Congress on Tuesday evening, and investors will be listening for more details regarding the administration's plans to aid the financial sector and struggling homeowners. While the White House offered few details on what the president will say in his televised address, spokesman Robert Gibbs said Obama will focus on his economic plan, the surge in foreclosures, his pledge to slash the budget deficit and the “re-regulation” of financial markets, among other issues.


Investors will also want to hear the President sound more upbeat about the nation's prospects.


At Tuesday's close of floor trading on the NYSE stocks had made their biggest advance in a month, halting six straight days of declines. The DOW was on 7350.86 with a gain of 236.08 points (3.32%), after closing at its lowest price since October 1997 on Monday. The S&P erased yesterday's loss, finishing on 773.06 after gaining 29.73 points (4.00%). The technology-heavy NASDAQ closed on 1387.33 after a gain of 53.51 points (3.71%).


The dollar traded in risk-acceptance mode as stocks gained but ended up mixed on the day, ending the session with a loss of 1.25% on the euro and 1.39% against Australia's dollar as it gained 2.39% on the yen and 0.01% against sterling.


Treasuries fell as stocks rallied. Yield on the 2-year note rose 4.9 basis points to 0.981% while yield on the 10-year note gained 4.5 basis points to 2.804%.


Crude for March delivery was recently trading up $1.54 (4.01%) to $39.96 per barrel.


Gold for April delivery was recently trading lower by $28.60 (-2.88%) to 966.00 per ounce after reaching a high on $1004.90 last Friday.