New York - US stocks made their strongest gains in a month Tuesday after Federal Reserve Chairman Ben Bernanke said that government action could pull the US economy out of a severe recession by later this year.

Testifying to the US Senate Banking Committee, the central bank chief said that the success of the 787-billion-dollar stimulus package would be essential to ending a downward economic spiral.

Financial shares made gains after Bernanke said that troubled US banks may not have to be nationalized. Sheila Bair, head of the Federal Deposit Insurance Corp, said she believed the largest US banks currently have enough capital.

JP Morgan Chase late Monday said it was slashing dividends by nearly 90 per cent, which would help it save 5 billion dollars per year.

Retailers rose after Home Depot Inc, Macy's Inc and Nordstrom Inc all reported better-than-expected earnings.

The blue-chip Dow Jones Industrial Average climbed 236.16 points, or 3.32 per cent, to 7,350.94. The broader Standard & Poor's 500 Index rallied 29.81 points, or 4.01 per cent, to 773.14. The technology-heavy Nasdaq Composite Index leapt 54.11 points, or 3.9 per cent, to 1,441.83.

The US currency dropped against the euro to 77.88 euro cents from 78.76 euro cents on Monday. The dollar soared against the Japanese currency to 96.74 yen from 94.64 yen. (dpa)