NEW YORK ? Wall Street rallied on Friday after Federal Reserve chief Ben Bernanke offered reassurances the US central bank was ready to step in if the economy faltered.

The Dow Jones Industrial Average rose 164.84 points (1.65 percent) to 10,150.65, rebounding from Thursday's close below the 10,000 psychological threshold.

The broader S&P 500 index was up 17.37 points (1.66 percent) to 1,064.59.

The tech-rich Nasdaq composite index gained 34.94 points (1.65 percent) to 2,153.63 on the back of an intensifying bidding war between computer titans Dell and Hewlett-Packard to acquire data storage firm 3PAR.

"Ben Bernanke was the big mover of the market, coming out and saying: We?re ready to help the economy if needed, but he was a bit more optimistic about the outlook for the economy, boosting stocks," said FTN Financial analyst Lindsey Piegza.

In a highly anticipated speech, Bernanke said that the sluggish pace of the US economic recovery and employment was weaker than expected by the Federal Reserve.

He nevertheless said that prospects for a US growth pick-up in 2011 appeared to "remain in place" despite sharp cutback in the pace of second quarter economic expansion.

He further said the Federal Reserve will take more "unconventional" steps to boost growth if the economic outlook "deteriorated significantly."

Earlier, the government slashed second quarter growth in the world's largest economy to a pace of 1.6 percent, signaling a more pronounced slowdown in the recovery from recession.

The Commerce Department said that gross domestic product growth in the April-June period fell from 3.7 percent in the first quarter on the back of a massive trade deficit and weak private inventory investment.

It was sharply lower than the annualized 2.4 percent projected earlier by the government, but came a shade higher than expected by most economists who had expected GDP growth to be shaved by nearly half, to 1.4 percent.

"The market was bracing for bad news on the GDP, I think it was quite critical that we saw a fairly decent number, not only the headline but why that number missed [expectations] is as important," said Marc Pado, analyst at Cantor Fitzgerald.

The positive atmosphere was based on indications of an unexpected increase in consumer spending and lower inventories, he explained.

Among the stocks in focus, 3PAR saw its shares skyrocket by nearly 25 percent to 32.46 after HP's latest bid to buy the "cloud technology" specialist for 30 dollars per share in cash, raising expectation for Dell's counter offer.

HP shares were down 0.58 percent, while Dell stocks were up by 1.17 percent.

The bond market was lower.

The yield on the 10-year US Treasury bond rose to 2.652 percent from 2.499 percent on Thursday while that on the 30-year bond was up to 3.698 percent from 3.531 percent. Bond yield and prices move in opposite directions.