Bernanke's cliff comments break two-day rally By Angela Moon NEW YORK (Reuters) - Wall Street halted its two-day rally on Tuesday, after Federal Reserve Chairman Ben Bernanke said the central bank lacks tools to cushion the economy from the impact of the "fiscal cliff." The day's biggest disappointment was Hewlett-Packard Co shares (HPQ.N), which sank to a 10-year low after the computer and printer maker swung to a fourth-quarter loss and announced a $5 billion charge related to "accounting improprieties." The stock slid 12 percent to close at $11.71. Bernanke, in comments before the Economic Club of New York, said the Fed does not have the ability to offset the damage that would result if politicians fail to strike a deal to prevent a series of mandatory tax increases and spending cuts scheduled to go into effect early next year. The statement caused a downdraft in the market, though the equity market cut most of its losses before the end of the day. "This is a more realistic and pragmatic picture of where we are, compared to what we've been hearing for the past couple of days from politicians that are mostly PR stunts," said James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania. Stocks had rallied for the last two sessions after Washington politicians sounded an encouraging note that a deal to avoid the U.S. fiscal cliff could be reached. The gains followed two weeks of sharp losses that pushed the S&P 500 down through the 200-day moving average, a key benchmark of the market's long-term trend. The S&P ended Tuesday near that level, which was 1,382.68. The Dow Jones industrial average .DJI slipped 7.45 points, or 0.06 percent, to 12,788.51 at the close. But the Standard & Poor's 500 Index .SPX edged up 0.93 of a point, or 0.07 percent, to finish at 1,387.82. The Nasdaq Composite Index .IXIC inched up 0.61 of a point, or 0.02 percent, to close at 2,916.68. Dow component HP said it took an $8.8 billion charge in the quarter, with $5 billion related to its acquisition of software firm Autonomy, citing "serious accounting improprieties." HP's market value is now just $23 billion, compared with $100 billion just two years ago. Best Buy Co (BBY.N) shares fell 13 percent to $11.96 after the consumer electronics retailer reported a net loss of $13 million for the third quarter on weaker-than-expected sales at its established stores. Another factor weighing on stocks was Moody's Investors Service's reduction of France's sovereign rating by one notch to Aa1 after the market's close on Monday. Moody's cited an uncertain fiscal outlook as a result of the weakening economy. This brings forward a whole new set of problems to the euro -zone issue. When the lifeguards, in this case, Germany and France, are in trouble, when they need to save people like Greece and Spain, that could be a big concern," Dailey said. Earlier, data showed U.S. housing starts rose to their highest rate in more than four years in October, suggesting the housing market recovery was picking up momentum, even though permits for future construction fell. An index of housing-related shares .HGX shot up 2.5 percent. Volume was roughly 5.6 billion shares on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the year-to-date average daily closing volume of around 6.5 billion. Advancers outnumbers decliners on the NYSE by a ratio of about 4 to 3. On Nasdaq, the opposite trend took hold, with about 13 stocks falling for every 12 that rose. Reporting by Angela Moon; Editing by Jan Paschal