Stocks dropped broadly Wednesday after Federal Reserve Chairman Ben Bernanke said the central bank is not prepared to consider further stimulus in the near term despite what he called an unusually uncertain outlook.

The Dow Jones Industrial Average fell steeply in the last two hours of trading, to end down 109.51 points, or 1.07%, closing at 10120.45.

The Standard & Poor's 500-stock index fell 1.28% to 1069.57 and the Nasdaq Composite dropped 1.58% to 2187.33.

Speculation that Bernanke might further stimulate lending helped stocks rally on Tuesday as investors frustrated by a recent spate of disappointing economic data looked for a quick fix from the Fed.

Instead, Bernanke didn't announce any new measures, offering instead a pessimistic outlook and continued promises to take more policy actions as needed. Bernanke's comments remained focused on how the central bank will need to tighten conditions to prevent inflation at some point.

The market's worries about the economic outlook outweighed the effects of better than expected second quarter earnings from a number of companies, which extended a generally upbeat picture from the U.S. corporate world. In the financial sector, Morgan Stanley jumped 5.9% after posting a surge in second quarter profit that topped analysts' estimates.

Wells Fargo climbed 0.6% after the bank posted a 12% rise in second quarter earnings, beating analysts' estimates, as credit loss provisions declined sharply.

Textron leapt 8.7% after the maker of Cessna planes and Bell helicopters swung to a sharply higher than expected second quarter profit as sales increased and the company boosted its 2010 profit target.

Eaton rose 6% after its second quarter earnings soared amid increased demand for the company's truck, auto and hydraulic components.

Apple climbed 0.9% as its fiscal third quarter profit jumped 78%, boosted by strong initial sales of its multimedia iPad device and the latest version of its popular smartphone, the iPhone 4.

Earnings and revenue topped analysts' expectations. However, Yahoo joined a string of companies whose revenues missed expectations. Its shares dropped 8.5%.

In addition, Quest Diagnostics fell 6.6% after its second quarter revenue dropped more than expected. The diagnostic testing company also lowered projected 2010 earnings and predicted revenue would shrink 1%.

European Market

European stocks rose Wednesday, boosted by well received U.S. earnings and further evidence of a pick up in merger activity.

The euro fell against the dollar, while oil prices slipped and gold was little changed. Basic resource shares led the advance as copper futures hit three week highs.

Kazakhmys added 7% and ArcelorMittal rose 2.2%, while the Stoxx Europe 600 for the sector gained 2.6%. The pan-European Stoxx 600 index closed up 1.2% at 249.24.

The U.K.'s FTSE 100 index rose 1.5% to 5214.64, France's CAC-40 index gained 0.7% to 3493.92 and Germany's DAX added 0.4% to 5990.38.

On the mergers front, consumer goods company Reckitt Benckiser gained 3.5% following the company's proposed acquisition of SSL International. SSL, the world's biggest condom maker, soared 33%.

BP jumped 3.2% after the company agreed to sell $7 billion in assets to U.S. energy company Apache Corp. On the whole, analysts viewed the deal as positive, saying it would allow BP to more easily absorb some of the fallout from the Gulf of Mexico oil spill.

At the same time, upbeat second quarter earnings results from Morgan Stanley, Coca-Cola and Wells Fargo helped to underpin sentiment.

The economic calendar for Thursday is busy, with the euro zone flash purchasing managers index and U.K. retail sales. Investors will also look to the euro zone balance of payments and industrial new orders, and the consumer confidence indicator.

In the U.S., initial jobless claims and existing home sales, are among the highlights. In major market action: Financials advanced in Europe, with Credit Suisse shares gaining 2.4% and Barclays up 1.9% ahead of Friday's bank stress test results.

Technology sector firms also gained, with ARM Holdings shares up 2.5% and Nokia shares up 1.1% ahead of its results on Thursday.

In the auto sector, Fiat shares jumped 6.7% after it reported a return to second quarter profit on better results across all its divisions.

Shares of Swedish paper company SCA surged 7.5% after reporting a 23% rise in second quarter net profit. Drug giant GlaxoSmithKline rose 1.1%.

The firm reported a loss for the second quarter, owing to restructuring and legal charges incurred as the company sought to settle lawsuits over two of its key drugs and a factory in Puerto Rico.

Roche Holding shares weighed in the pharmaceutical sector, dropping 4.2% after an unfavorable recommendation from a U.S. Food and Drug Administration panel regarding the company's cancer drug Avastin.

Asian Market

Most Asian markets finished higher Wednesday as steel stocks rallied on news China is aiming to consolidate the local industry while Japanese shares fell on fears that the strong yen would hurt profits.

Japan's Nikkei Stock Average shed 0.2%, South Korea's Kospi rose 0.7% and Australia's S&P/ASX 200 climbed 0.2%.

Hong Kong's Hang Seng Index advanced 1.1% and China's Shanghai Composite rose 0.3%, stretching its winning run into a third straight session, while Taiwan's Taiex slipped 0.1% and India's Sensex gained 0.6%.

Dow Jones Industrial Average futures climbed 18 points in screen trade. Steel shares around the region rallied on news China is aiming to slash the number of steel makers in the country by about 75%.

Hopes that spot prices had reached a bottom also supported prices, with Deutsche Bank analysts writing that about 40 medium to small mills in China had raised their prices modestly in the past two days. Angang Steel surged 7.9% and Maanshan Iron & Steel jumped 7.5% in Hong Kong, while Baoshan Iron & Steel rose 1.1% and Wuhan Iron & Steel advanced 1.3% in Shanghai.

Elsewhere, Posco gained 2.4% in Seoul, China Steel inched up 0.2% in Taipei and Tata Steel increased 3.1% in Mumbai. In Tokyo, JFE Holdings rose 0.4% and Nippon Steel Corp. added 0.7%.

Material stocks were generally higher around the region after the rebound on Wall Street and on an increase in crude oil prices.

Chinese oil company Cnooc climbed 2.4% while Aluminum Corp. of China advanced 3.2% in Hong Kong. In Sydney, BHP Billiton advanced 1.2% after reporting a strong performance in its fourth quarter, with production of iron ore and metallurgical coal both up 16% on the year.

Although Japanese technology shares rose in early trading in the wake of strong fiscal third quarter earnings from Apple, worries about the yen's strength erased some of those gains.

Elpida Memory tumbled 3.5% and Toshiba Corp. fell 0.7%. The yen's strength hurt other exporters. Toyota Motor Corp. stock slid 0.8% while Nissan Motor dropped 1.0%.

Nomura Holdings fell 3.8% and Daiwa Securities Group slid 3.5%, hurt by news of U.S. financial giant Goldman Sachs' weaker than estimated results. Investors were also concerned the two financial companies may need to raise capital.

In Korea, LG Chem rose 4.4% after the company reported record second quarter earnings Tuesday, beating estimates on strong sales of petrochemicals and rechargeable batteries.

Elsewhere in the region, New Zealand's NZX 50 added 0.3% and Philippine stocks ended 0.4% higher. Singapore's Straits Times Index had slipped 0.8% and Thailand's SET Index rose 0.8%.

Commodities

Copper rallied to a three week high on the London Metal Exchange Wednesday, shrugging off a weaker euro and a mixed performance in equity markets.

Traders said fresh fund buying drove copper and other metals above technical resistances, forcing shorts to buy back their positions.

The strong performance may continue if Chinese market participants decide to bid the metals higher Thursday, they said.

Three month copper rose to a high of $6,885 a metric ton, and closed near the highs at $6,860/ton, up 3.3% on the day. Oil prices slipped Wednesday amid an unexpected surge in crude reserves in the United States, indicating weaker demand in the key energy consuming nation.

New York's main contract, light sweet crude for delivery in September, sank $1.02 to close at $76.56 a barrel. London's Brent North Sea crude for September dropped 85 cents, settling at $75.37.

The market was shocked by the latest data Wednesday from the US Department of Energy showing American crude oil reserves rising 400,000 barrels in the week ending July 16. The department also said gasoline inventories grew by 1.1 million barrels last week.

Stocks of distillates, which include diesel and heating fuel, added 3.9 million barrels, more than double the expectated gain of 1.6 million barrels.

Gold futures ended near the unchanged mark after a day of mixed trading in equities and currencies left markets little definitive direction.

But prices fell in post settlement activity after the release of testimony by Federal Reserve Chairman Ben Bernanke did little to allay fears of deflationary pressure. Comex August gold settled up 10 cents at $1,185.20 an ounce.