Ben Bernanke, chairman of the Federal Reserve, sought to steady America’s stock markets yesterday, by indicating that his US Central bank would continue to offer cheap financing to Wall Street firms into 2009 should the damaging credit crunch "continue to prevail".

As the US stock markets continued to hover around so-called bear territory, Mr Bernanke assured a conference in Arlington, Virginia, that the Fed is "strongly committed" to maintaining financial stability as credit costs have been driven higher and the economy hit by the US housing crisis.

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets," he said.

Mr Bernanke was speaking a day after America’s financial companies collectively recorded a 3.3 per cent drop in their share price on concerns about the continuing impact of the credit crunch on their balance sheets. That decline dragged down the broader Standard & Poor’s 500 index to within a whisker of bear market territory – to stand 19.9 per cent below its last peak in October, when the definition of a bear market is 20 per cent.

The Fed set up the so-called Primary Dealer Credit Facility, or PDCF – known as the discount window – in March following the near collapse of Bear Stearns under the weight of sub-prime investment losses. It said at the time that the programme, which allows so-called primary dealers to borrow directly from the Fed at the discount rate – presently 2.25 per cent - would last for at least the six months, taking it to September.

Meredith Whitney, an analyst at Oppenheimer, said: "I was actually surprised that Ben Bernanke is considering extending the window. I thought there were other areas such as the banks and the GSEs that need help more than the brokers."

GSEs, or government sponsored enterprises, such as Freddie Mac and Fannie Mae, inject liquidity into the mortage market by buying up homeloans, packaging them into securities and selling them. They face huge losses on many of the mortgages they have "securitised", which is expected to feed through into the banking system and fuel the credit crunch.

Mr Bernanke’s assurances did calm the markets in early morning trading, but the release of new housing data, which showed that the market was worse than expected, reversed those early gains. By mid-day the Dow Jones index had declined by 39.41 points to stand at 11,192.55.

Pending sales of US homes fell by 14 per cent in May, compared to the year before, in a further sign that potential buyers believe that house prices have further to fall.

The volume of American homes for which a sale had been agreed but not yet completed declined by 4.7 per cent in May, compared to April, when pending sales bucked the recent trend and rose – by 7.1 per cent.

The decline was the biggest in the South, where pending sales in May were 7.1 per cent below April’s figure, according to the National Association of Realtors.

The headline 4.7 per cent drop is larger than the consensus forecast of 3 per cent and suggests that would-be buyers are holding off on purchases in the expectation that prices will fall further.

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