More upbeat Fed holds rates low

The US Federal Reserve has left interest rates near zero and vowed to keep them there for a while to help an economic recovery held back by stubbornly high unemployment.

The Fed's statement reflected a somewhat brighter tone than it had at the previous meeting in December, although it removed a reference to improvement in the housing market.

It said its latest information suggested that economic activity had continued to strengthen and the deterioration in the labour market was easing. In the December statement, the Fed had said economic activity 'has continued to pick up'.

The decision to hold rates steady was 9-1, with Kansas City Federal Reserve Bank President Thomas Hoenig dissenting because he wanted the central bank to eliminate a phrase vowing to keep rates exceptionally low for an extended period.

The US economy resumed growing in the third quarter and most economists think it expanded at a rapid rate in the final three months of 2009. But with a jobless rate of 10%, consumer spending is likely to remain subdued.

The housing market, which was at the root of the recession that began in December 2007, has also shown worrying signs of renewed weakness.

Figures released earlier showed that sales of newly constructed homes fell unexpectedly in December. That came on the heels of another report earlier this week that showed a steep drop in sales of existing homes.

In its statement, the Fed dropped a reference that had been included in December's statement which said the housing sector 'has shown some signs of improvement over recent months'.

In an effort to stem the worst financial crisis in generations, the Fed not only slashed interest rates but also undertook a series of emergency actions to soothe ailing credit markets.

One such measure is the purchase of some $1.43 trillion in housing-linked debt aimed at helping the mortgage market recover from its worst downturn in modern history.

The Fed repeated its intention to allow the programme to conclude as scheduled by the end of March, but added: 'The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.'

The decision comes amid a firestorm in Washington over Ben Bernanke's nomination to a second term as chairman of the US central bank.

Once expected to sail through the Senate, his confirmation vote ran into stiff resistance last week, but Bernanke's confirmation now looks more likely. A final confirming vote could come on Friday.