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MONEY
Janet Yellen

Stocks cut gains, close mixed: Dow down 100, Nasdaq up 0.4%

Adam Shell
USA TODAY

An early rally on Wall Street lost steam Wednesday as stocks cut early gains and closed mixed as oil prices fell again and investors digested remarks from Federal Reserve Chair Janet Yellen testimony before Congress on the state of the economy.

The Dow Jones industrial average turned negative and fell 99.64 points, or 0.6%, to 15,914.74, after being up for most of the day and rising as high as 190 points in early trading. The blue-chip index is now down four straight sessions.

The broader Standard & Poor's 500 stock index was off its earlier highs and ended up down a fraction, closing off 0.35 to to 1851.86. The Nasdaq composite index rose 14.83 points, or 0.4%, to 4283.59, breaking a three-day slide.

Trader Sal Suarino, left, works on the floor of the New York Stock Exchange, Monday, Jan. 11, 2016.  (AP Photo/Richard Drew)

The early rally was sparked after Federal Reserve Chair Janet Yellen's prepared remarks to lawmakers cited emerging headwinds that could signal a pause in its plan to raise interest rates.  But investors remain nervous about a potential slowing down of the economy and uncertainty surrounding plans for further interest rate hikes.

Analysts were hoping that Yellen would hint that the Federal Reserve could hold off on additional rate hikes, due to tightening financial conditions caused by market tumult and slowing global growth since its December meeting, when it hiked interest rates for the first time in nearly 10 years.

Fed's Yellen cites growing risks to economy

In her statement, Yellen did not specifically rule out a March hike, but she did downgrade her view of the economic outlook. She said the big sell-off in the stock market and other changes in financial conditions have become “less supportive of growth.” On the positive side of the ledger, Yellen said a strong labor market and rising wages should support growth going forward.

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

Also boosting sentiment: reports that German financial giant Deutsche Bank will buy back so-called senior bonds. This type of debt is paid back first if a company goes out of business. That move, coupled with co-CEO John Cryan's note to employees Tuesday that the bank is "rock solid", has temporarily eased fears about the bank's health. Worries about the health of European banks, which have been hard hit by global growth fears, falling oil prices and other factors, have weighed on global markets in recent days.

Under pressure Deutsche Bank's shares leap

Wall Street continued to closely watch oil prices, following a sharp plunge Tuesday. U.S.-produced crude was down 1.5% to $27.52 a barrel after rallying earlier to as high as $29.22.

European stock markets enjoyed a relief rally, ending two days of sharp losses. The Stoxx Europe 600 index was up 1.8%. In Germany, the DAX was 1.6% higher and in Paris the CAC 40 was up 1.6%.

On Tuesday, U.S. stocks headed back down towards their lows in January, but reversed course and finished the day with modest losses.

Still, the broad U.S. stock market is experiencing "rolling bear markets" in certain pockets of the market, Tobias Levkovich, chief U.S. equity strategist at Citigroup told clients in a research note. Also weighing on markets despite the selloff to kick off the year is the fact that valuations are "still not cheap, according to a Credit Suisse report. Analysts at RBC Capital Markets also noted that there's "no proof yet" that the market has successfully retested its lows earlier this year.

Shares in Japan again fell sharply, following Tuesday's 5.4% drop. The Nikkei 225 closed down 2.3%, hurt by a rising yen versus the dollar, which hurts Japanese exporters.

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