Bernanke sees stronger growth in 2nd half of year

UNITED STATES Federal Reserve Chairman Ben Bernanke noted Tuesday that the job market and the economy have weakened in recent weeks.

But he said the main reasons are higher gas prices and the Japan crises - factors that should ease in coming months - and predicted growth would strengthen later this year.

Bernanke made no mention of any new steps the Fed might take to boost the economy.

The Fed's US$600 billion Treasury bond-buying programme is ending this month. The programme was intended to keep interest rates low to strengthen the economy. But critics said it raised the risk of high inflation.

The Fed chairman said the economy still needs the benefit of low interest rates.

Stocks fell after Bernanke began speaking. The Dow Jones industrial average erased gains made earlier in the day and closed down for the fifth straight day, as did broader indexes.

The Dow closed down 19 points at 12,071.

Bernanke noted the May jobs report released last week was disappointing. It showed the unemployment rate rose to 9.1 per cent and the economy added just 54,000 jobs, the fewest in eight months. But he said he expected job creation and overall economic growth would rebound in coming months.

"Overall, the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers," Bernanke said in his remarks to an international banking conference in Atlanta.

Bernanke said the central bank would not consider the recovery to be well established "until we see a sustained period of stronger job creation".

He repeated a pledge that central bank officials have been making for more than two years: that they will keep interest rates at record lows "for an extended period".

Bernanke said that consumer inflation has jumped 3.5 per cent in the six months ending in April - well above the average of less than one per cent over the preceding two years.

But he noted that most of the increase has been caused by higher gas prices, which have been creeping down in recent weeks.

Excluding food and energy, inflation has been tame, he noted.

The dollar fell against the euro ahead of Bernanke's speech as investors increasingly fear that US economic growth is slowing.

The euro hit a one-month high of $1.4695 in late trading in New York, up from $1.4587 Monday. Brown Brothers Harriman analysts said better-than-expected reports on European retail sales and German manufacturing are lifting the currency shared by 17 nations ahead of Thursday's European Central Bank (ECB) meeting.

Investors expect the ECB to signal an increase in key interest rates is coming in July. The Fed, led by Bernanke, is expected to keep rates near zero until at least next year to support the economy.

Higher rates can increase demand for a currency.

The British pound rose to $1.6451 from $1.6352, while the dollar inched up to 80.19 Japanese yen from 80.13 yen.

- AP