Remarks Friday from Bernanke and investor Warren Buffett appeared to dim Wall Street's hopes that mortgage financiers Fannie Mae and Freddie Mac might be able to get by without a government bailout. While such a move could help prop up the government-chartered companies, which together hold or back nearly half the nation's mortgage debt, it could also wipe out shareholder equity.
While Bernanke didn't mention them by name he said he said one of the critical questions facing the country is how to strengthen the financial system and guard against the "moral hazard" of companies making risky choices thinking that the government will ultimately offer a safety net.
Buffett said on CNBC that Fannie and Freddie are too big to fail but that shareholder equity in those companies can be lost.
Fannie Mae rose 15 cents to $5, while Freddie Mac fell 35 cents, or 11%, to $2.81.
Linda Duessel, the equity market strategist at Federated Investors, said the financial sector is key to a broader recovery on in stocks, which are down more than 10% this year.
"We need to absolutely find a bottom in financials to really believe that the bear can be behind us," she said, referring to the pullback in stocks since last fall.
While most sectors gained ground Friday, some materials companies pulled back as commodity prices fell. United States Steel x fell $5.44, or 3.9%, to $133.76, while miner Freeport-McMoRan Copper & Gold fcx declined $3.06, or 3.3%, to $90.60.
In corporate news, Gap gps rose 87 cents, or 4.6%, to $19.88 after reporting late Thursday that profit in the most recent quarter rose 51% from a year earlier, thanks to tight inventory and cost control.
King Pharmaceuticals kg said it is prepared to take its bid for Alpharma alo directly to shareholders after the company rejected King's $1.4 billion buyout overture. King disclosed the $33 a share offer publicly for the first time Friday. Alpharma surged $10.47, or 44%, to $34.51, while King rose 95 cents, or 8.5%, to $12.19.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to a light 888.6 million shares compared with 912 million shares traded Thursday.
The Russell 2000 index of smaller companies rose 12.35, or 1.70%, to 737.60.
Overseas, Japan's Nikkei stock average fell 0.68%. Britain's FTSE 100 rose 2.52%, Germany's DAX index rose 1.69%, and France's CAC-40 advanced 2.23%.