While you were sleeping: UPDATED US stocks fall as Yellen signals confidence

Wall Street rose then fell after Federal Reserve chairwoman Janet Yellen signalled confidence in the US economy and confirmed her expectation for "gradual increases" in the central bank's key target interest rate.

"Ms Yellen seems to be maintaining her faith in the outlook of the US economy and still anticipates to raise rates," Western Union Business Solutions senior market analyst Joe Manimbo told Reuters.

Ms Yellen noted the path for the fed funds rate depended on what the data suggest about the economic outlook, and flagged both further interest increases as well as flexibility on the timing of them.

"Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar," she said in testimony to the House Financial Services Committee in Washington.

"These developments, if they prove persistent, could weigh on the outlook for economic activity and the labour market, although declines in longer-term interest rates and oil prices provide some offset."

Wall Street turns down
On Wall Street, the Dow Jones Industrial Average dropped out of positive territory early in ther session to close 99.64 points down, or 0.6%, to 15,914.74. The Nasdaq Composite Index climbed 0.4% and the Standard & Poor's 500 Index was virtually unchanged at 1851.86.

"What Ms Yellen said has been taken positively," Philadelphia Trust Co chief investment officer Richard Sichel told Reuters. "Stocks in general are cheaper now than they were three days ago or three months ago, so there's an opportunity to step in."

Gains in shares of Nike and those of Visa up 3.4% and 2.7% respectively, helped propel the Dow higher. The biggest losers, in percentage terms, were shares of Walt Disney and those of Caterpillar, down 4.8% and 2.2%.

"She is holding to her guns," Ward McCarthy, chief financial economist at Jefferies in New York, told Bloomberg. "The financial market turmoil is not going to make them reverse course. It could have an effect on the pace at which they normalise rates, but they are still committed to normalising rates."

US crude dropped 2.25% to $US27.31 while Brent rose 1.7% to $US30.84. Gold eased 0.1% to $US1197.50.

Europe's Stoxx 600 Index finished the session with a 1.9% increase from the previous close, bolstered by a recovery in bank stocks. The UK's FTSE 100 Index added 0.7%, while Germany's DAX Index climbed 1.6%, as did France's CAC 40 Index.

Shares of Deutsche Bank rebounded amid reports that Germany's biggest bank might buy back some of its bonds to help reassure spooked investors.

"It's a smart act," Morgan Stanley’s former chief executive officer John Mack told Bloomberg. "You know what's going on within your bank, if these bonds are traded at distressed levels and you have cash, why wouldn't you take them back out."

UPDATED for Wall Street close (10am NZ time)

(BusinessDesk)