WASHINGTON — Retail shares rebounded on Wednesday, joining a stock market rally spurred by Federal Reserve chairman Ben Bernanke, who suggested that two years of interest rate increases might be nearing an end.

A day after retail stocks tumbled when Target lowered its July sales forecast amid concerns about consumer spending, the Standard & Poor’s retail index rose 2.8 percent to 427.07, regaining the ground lost when shares in the sector fell 2 percent on Tuesday.

Among the retailers that gained were: Abercrombie & Fitch, up 4.1 percent to $53.05; Cache Inc., 5.1 percent to $17.07; Federated Department Stores, 4.9 percent to $34.95; Limited Brands, 3.7 percent to $24.65, and Wal-Mart Stores, 2.4 percent to $44.20. Target shares inched ahead 0.4 percent to $45.72.

Bernanke said during testimony before the Senate Banking, Housing and Urban Affairs committee that the economy is in “a period of transition” and seems to be slowing.

“One likely source of this deceleration was higher energy prices, which have adversely affected the purchasing power of households and weighed on consumer attitudes,” he said.

The Fed has raised interest rates to 5.25 percent from 1 percent in June 2004 and will meet Aug. 8 to decide on the overnight lending rate. Bernanke acknowledged the 17 straight increases, saying, “We must take account of the possible future effects of previous policy actions — that is, of policy effects still ‘in the pipeline.'”

The Dow Jones Industrial Average jumped 212.19, or 2 percent, to close at 11,011.42. The Nasdaq was up 37.49, or 1.8 percent, to 2,080.71 and the S&P 500 climbed 22.95, or 1.9 percent, to 1,259.81.

Despite the rebound in retail stocks, Robert Buchanan, retail industry group leader at A.G. Edwards & Sons, said, “Clearly the negatives outweigh the positives in terms of forces being exerted on consumer spending and the negatives, of course, include high gas prices, high oil prices, high interest rates” and new rules on minimum credit card payments.

On Tuesday, A.G. Edwards downgraded the 32 stocks in its retailing group to “underweight” from “even weight.”

This story first appeared in the July 20, 2006 issue of WWD. Subscribe Today.

Bernanke said inflation remained a concern, and a government report Tuesday said prices were still going up.

Retail prices on women’s apparel grew by a seasonally adjusted 1 percent in June and helped boost the Labor Department’s Consumer Price Index for all goods and services by 0.2 percent, its slowest growth in four months.

Excluding the volatile food and energy categories, “core” prices increased 0.3 percent for the fourth consecutive month. This makes for an annualized growth rate of 3.6 percent during the past three months, well above Bernanke’s target rate of 1 to 2 percent.

“It is indeed possible that the Fed is nearly done,” said Nigel Gault, chief U.S. economist at Global Insight, which is projecting another 25 basis point increase in interest rates when the open market committee meets. “But we still see clear and growing risks that the Fed will have to do more,” Gault said in a report. “The inflation figures will get worse before they get better and the Fed may have to do more to keep inflationary expectations in check.”

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