Ben Bernanke, chairman of the US Federal Reserve, today admitted the Government may be forced to inject billions of extra dollars into the American economy after warning of a "protracted slowdown".

Speaking before the House of Representatives, Mr Bernanke suggested that the US required another “significant” fillip to help stimulate growth after Americans were granted $168 billion worth of tax rebates in May, to encourage spending and boost consumer confidence.

A new plan would come on top of the $700 billion bailout of the country's ailing banking sector, which includes $250 billion in funding to buy shares in American lenders.

Mr Bernanke said today: “With the economy likely to be weak for several quarters and with some risk of a protracted slowdown, consideration of a fiscal package by Congress at this juncture seems appropriate.”

He added: "If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers.

“Such actions might be particularly effective at promoting economic growth and job creation.”

Shares on America's Dow Jones industrial index closed up 413.21 points to 9,265.4 amid continued indications of slight improvements in the credit markets, including Libor and commercial paper.

In London, shares also closed up 219.66 points at 4,282.67, despite forecasts that the UK economy will move closer to recession when third-quarter GDP growth is revealed on Friday.

Mr Bernanke's hints of a new plan follows moves last week from Nancy Pelosi, the Democratic Speaker of the House of Representatives, to gain backing for a new $150 billion rescue package to increase food stamps for low income families and extend unemployment benefits.

Food stamps date back to 1943, and are part of a federal programme that gives very low-income families an allowance to spend on groceries.

The allowance is distributed on to debit cards which can be used in supermarkets across the country, and recipients are also eligible to claim free school meals for their children.

A record 28 million Americans now receive food stamps at a cost to the Government of almost $30 billion a year.

Ms Pelosi has said that she could try to force through a Bill after the presidential election on November 4, but before Christmas.

Meanwhile, US Treasury Secretary Henry Paulson, said yesterday that government purchases of stock in banks represent an investment that should eventually make money for taxpayers. Mr Paulson said the government will own shares in the banks that should be paid back with a reasonable return and the government will also receive warrants for common sharesin the banks.

He made his comments as he announced a streamlined application process that banks can follow to apply to sell shares to the government by a deadline of November 14. Mr Paulson said “a broad group of banks of all sizes” had shown interest in a capital injection.

A total of $250 billion has been set aside for capital injections out of a $700 billion rescue package for the financial system.

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