Wall Street Indices Rebound To End About Flat

US stocks bounced back after sharp early losses, to end Tuesday's session largely stable following Federal Reserve Chair Jerome Powell pledging to keep interest rates low until inflation rises consistently.

The Dow Jones dropped nearly 350 points in early trading, but recovered to close with a scant gain of less than 16 points at 31,537, while the S&P 500 edged up 0.1 percent to finish at 3,881.

But the Nasdaq fell another 0.5 percent to 13,465.

Markets have become jittery about the prospects that the pandemic recovery - fuelled by the US$1.9 trillion economic stimulus package making its way through Congress - will ignite inflation leading to rising lending rates.

Investors have pushed yields on 10-year Treasury notes higher - a key red flag for rising prices and interest rates.

Art Hogan of National Securities said it was the speed of the increase in yields that surprised markets.

"It feels like there was a tipping point at which that became a concern for growth stocks. And the market reacted to that," he said.

But he said rising yields are a signal the economy is poised to rebound, and "faster economic growth is likely to drive better earnings."

Powell agreed and tamped down inflation fears saying the Fed will keep the benchmark interest rate near zero until the economy reaches maximum employment and "inflation has risen to two percent and is on track to moderately exceed two percent for some time."

And he stressed that the Fed is prepared to handle whatever comes its way, so "if it does turn out that unwanted inflation pressures arising are persistent and we have the tools to deal with that."

He will have another opportunity to address the issues during his second day of testimony in Congress on Wednesday.

In individual stocks, Boeing fell 0.4 percent after dozens of its 777 aircraft were grounded following an engine fire on a flight out of Denver which US regulators said could have been caused by metal fatigue.

Home Depot fell 3.1 percent after reporting better than expected earnings. (AFP)