Ben Bernanke, the Chairman of the US Federal Reserve, sought to steady America's stock markets yesterday by indicating that the central bank would continue to offer cheap financing to investment banks into 2009 should the credit crunch “continue to prevail”.

With stock markets in the United States hovering around bear territory, Mr Bernanke told a conference in Arlington, Virginia, that the Fed was committed to maintaining financial stability as credit costs had been driven higher and the economy had been hit by a 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 prices. 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 last October. The definition of a bear market is 20 per cent below.

The Fed set up the Primary Dealer Credit Facility, or PDCF - known as the discount window - in March after the near-collapse of Bear Stearns under the weight of sub-prime investment losses.

It said at the time that the programme, which allows primary dealers to borrow directly from the Fed at the discount rate - at present 2.25 per cent - would last at least six months, taking it to September.

Meredith Whitney, an analyst for 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 mortgage market by buying up home loans, packaging them into securities and selling them.

They face huge losses on many “securitised” mortgages, which could affect the banking system.

Pending sales of American homes fell 14 per cent in May, compared with the year before, in a further sign that potential buyers believe that house prices will continue to slide.

The volume of American homes for which a sale had been agreed but not completed declined by 4.7 per cent in May compared with April.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts