U.S. STOCKS, BONDS

Stocks shook off the Fed chief's dour view of the state of U.S. growth, reversing early losses on hopes central bankers might be forced to come to the economy's aid.

The Dow Jones Industrial Average rose 78.33 points, or 0.6%, to 12805.54. The blue chips fell hard after Federal Reserve Chairman Ben Bernanke gave few clues that the Fed would take imminent steps to support the U.S. economy in testimony before the Senate Banking Committee.

Investors said Mr. Bernanke's lack of specifics initially disappointed the markets. But the Dow industrials stormed back from a more than 82-point drop to trade firmly in the black, staging their biggest swing from negative to positive territory in nearly six months.

The Standard & Poor's 500-stock index gained 10.03 points, or 0.7%, to 1363.67, and the Nasdaq Composite Index added 13.10 points, or 0.5%, to 2910.04.

All 10 of the S&P 500's sectors rose, lead by health care and materials stocks. A trio of bellwether stocks gained ground despite falling profits compared with a year ago.

Coca-Cola advanced 1.6% after the beverage giant reported second-quarter earnings and revenue that topped analysts' estimates. Goldman Sachs Group gained 0.3% after the investment bank reported second-quarter earnings and revenue that exceeded expectations.

Additionally, Goldman agreed to sell Goldman Sachs Administration Services, a hedge-fund administrator, to State Street for $550 million.

Johnson & Johnson rose 0.8% even after the drug and consumer-products company reported second-quarter revenue that fell short of analysts' expectations and lowered its 2012 earnings outlook.

Mattel soared 9.7% as the S&P 500's biggest gainer after posting a surprise 20% jump in second-quarter earnings.

In U.S. economic news, consumer prices were flat in June, in line with expectations, as energy costs continued to fall. Industrial production picked up in June, rising slightly more than expected, according to the Federal Reserve. Meanwhile, capacity utilization increased slightly but fell short of expectations.

Elsewhere, home builders' confidence in July had the biggest monthly jump in nearly a decade, another sign of optimism in the housing market.

U.S. Federal Reserve Chairman Ben Bernanke Tuesday disappointed investors looking for hints that additional stimulus is imminent, leaving European stocks to end a volatile trading session in negative territory.

EUROPEAN STOCKS, BONDS

The Stoxx Europe 600 index closed 0.3% lower at 256.09, breaking a two-day winning streak. Shares of Alcatel-Lucent dropped the most in the pan-European index, falling 20% after the French telecom-equipment maker warned performance in the second half won't meet its operating-margin guidance for the full year.

Among other notable decliners, G4S PLC tumbled 5.7%, as it was downgraded to neutral from buy at Bank of America Merrill Lynch following an Olympic Games staff shortage and contract debacle.

On the data front, the ZEW index of German investor expectations dropped to minus 19.6 in July from minus 16.9 in June. Spain's IBEX 35 index outperformed most major European country-specific indexes, adding 0.4% to 6,558.20.

The government successfully sold 3.56 billion euros ($4.37 billion) of government debt amid sharply lower borrowing costs. In the secondary market, yields on benchmark 10-year Spanish government bonds were marginally higher at 6.77%, according to electronic trading platform Tradeweb.

Utility firms helped lift the Spanish index. Iberdrola SA advanced 2.3% after Morgan Stanley lifted the stock to overweight from equal weight, while Gas Natural SDG SA gained 0.6% as the bank upgraded the firm to equal weight from underweight.

Elsewhere, the U.K. FTSE 100 index shed 0.6% to 5,629.09 as banks and resource firms came under pressure. Heavyweight HSBC Holdings PLC fell 1.7%.

The bank said in a statement dated Monday that it would apologize and acknowledge its mistakes when it appears Tuesday before the U.S. Senate Permanent Subcommittee on Investigations in relation to a money-laundering investigation.

Miner Rio Tinto PLC slid 2.3% after reporting record iron-ore and coking-coal production in the first half of the year but remaining cautious on the global economic conditions.

In France, oil group Total SA slipped 0.4%. The CAC 40 index closed 0.1% lower at 3,176.97. In Germany, the DAX 30 index rose 0.2% to 6,577.64, as chemicals producer BASF SE added 1.2% after its fungicide Xemium gained European Union approval.

ASIA-PACIFIC STOCK MARKETS

Asian shares gained Tuesday as investors bought ahead of U.S. Federal Reserve Chairman Ben Bernanke's testimony to Congress later in the day, while a stronger yen prompted comments from Japan's finance minister.

Expectations of further easing, along with weak retail figures out of the U.S. placed the dollar under pressure, with the greenback touching a four-week low against the yen overnight Monday.

The rise in the yen was bad for Japanese exporters. Sony dropped 3.4%, Canon Electronics fell 2.4% and Nikon was 2% lower.

There was a silver lining from the U.S. overnight in the form of a stronger-than-expected earnings report from Citigroup, which provided upward momentum to financial stocks across the region.

Banks in Japan were also reacting to the rally in their U.S. peers Friday, which they missed due to Monday's local holiday. Nomura Holdings was up 1.1%, Daiwa Securities gained 1.9% and Mitsubishi UFJ Financial Group rose 0.5%.

The Nikkei was 0.4% higher at 8755.00. Banks also rose in Hong Kong, where the Hang Seng Index was 1.8% higher at 19455.33.

The large Chinese state-owned banks were all higher: Industrial & Commercial Bank of China gained 2.5% and Bank of China rose 1.1%.

Investors weren't put off Hang Seng Index heavyweight HSBC despite a U.S. Senate investigation saying that for years the bank's operations were being used by money launderers and potential terrorist financiers.

The bank climbed 1.3% in Hong Kong. South Korea's Kospi gained 0.2% to 1821.96 and the Shanghai Composite climbed 0.6% to 2161.19. In company news, Hyundai Motor fell 2.4% in Seoul after Hyundai Heavy Industries sold a 1.45% stake in the carmaker in a block trade before the market opened.

In Hong Kong, coal transportation company Winsway Coking Coal Holdings fell 10.1% after warning it expects to report a loss for the second half of 2012.

COMMODITIES

Base metals closed mostly lower on the London Metal Exchange Tuesday as investors expressed their disappointment over Federal Reserve Chairman Ben Bernanke's prepared remarks to the U.S. Senate.

At the close, flagship three-month copper was 1.3% lower on the day at $7,590 a metric ton. Zinc was down 1.3% at $1,864/ton.

Oil futures Tuesday ended at their highest since late May, relying on momentum to shake off disappointment after U.S. Federal Reserve Chairman Ben Bernanke offered no clear hints of further monetary-policy stimulus for now.

Crude for August delivery gained 79 cents, or 0.9%, to settle at $89.22 a barrel on the New York Mercantile Exchange, extending oil's winning streak to a fifth session. That was oil's highest finish since May 29 and comes on the heels of a 1.5% rally Monday.

Oil has gained 6.3% over the past five sessions. Brent oil futures were trading up 47 cents at $103.84 a barrel. Gold recouped nearly all of the session's losses and ended nearly flat as initial investor disappointment at Mr. Bernanke's comments to the Senate Banking Committee faded.

The most actively traded contract, for August delivery, fell 0.1%, or $2.10, to settle at $1,589.50 a troy ounce on the Comex division of the New York Mercantile Exchange. From MORRISON SECURITIES PTY. LTD.