US stocks opened higher today after Henry Paulson, the US Treasury Secretary, reassured investors Fannie Mae and Freddie Mac, America's two biggest housing financiers, were "adequately capitalised" in the face of a "challenging period".

The Dow Jones industrial average rebounded 32.98 points to 11,180.42 after diving into bear territory yesterday when it fell 236.77 points on a mix of poor company results and threats of rating downgrades.

US shares also rose on statements from Ben Bernanke, chairman of the US Federal Reserve, who urged Congress to tighten Wall Street legislation to allow regulators to oversee the "orderly liquidation" of troubled banks to stop contagion.

The Government-sponsored Fannie Mae and Freddie Mac buy home loans from mortgage lenders and package them into bonds, guaranteeing the interest and principal payments in the event of a default.

Yesterday, William Poole, the former St. Louis Federal Reserve President, raised fears that both companies would have to be bailed-out.

He said: "Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer."

However, Mr Paulson calmed jitters today, speaking alongside Mr Bernanke before the House Financial Services Committee, calmed jitters over the two companies. He said they were "working through this challenging period" of the US housing slump.

Mr Paulson added that the two companies "play an important role in out housing markets today and need to play an important role in the future".

Mr Bernanke told the House Financial Services Committee that the meltdown at Bear Stearns highlighted loopholes in existing legislation.

He said the Fed and Securities and Exchange Commission had agreed with major Wall Street firms on a voluntary oversight plan but that more was needed.

Mr Bernanke added: "The financial turmoil that began last summer has impeded the ability of the financial system to perform its normal functions and adversely affected the broader economy."

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