the chairman of the Federal Reserve, publicly indicated on Tuesday that he believes the problems will persist into next year when he outlined a series of steps the Fed is considering in the coming months. Speaking in Virginia at a forum on mortgage lending for low-income households, Mr Bernanke said: “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 and exigent circumstances continue to prevail in dealer-funding markets.”In March, the Fed granted primary dealers – a term that covers investment banks such as Lehman Brothers and Merrill Lynch – access to emergency cash for at least six months in an effort to stabilise the US financial system on the same day it helped rescue Bear Stearns with a $29bn loan. Previously, access to emergency funding was only allowed for commercial banks such as Citigroup and JPMorgan.

Treasury Secretary Henry M. Paulson Jr. said in a speech last week in London that the problems of the housing and financial markets might last longer than originally expected. He followed up in another speech on Tuesday by saying that the Bush administration was working to prevent as many home foreclosures as possible, but that “many of today’s unusually high number of foreclosures are not preventable.” Mr. Paulson said 1.5 million home foreclosures were started in 2007 and that an estimated 2.5 million more would take place this year. More evidence of the depth of the US housing crisis came yesterday when a measure of pending home sales fell at an unexpectedly steep rate of 4.7 per cent in May.

Officials said that the Federal Reserve remained concerned that the declining housing market would not reach its bottom and financial markets would not become more stable before some time next year, and that the economy would continue to suffer as a result of declining consumer confidence, a sluggish global economy and the widespread effects of the rapid jump in oil prices.

The S&P 500 closed up 1.71 per cent at 1,273.70, rebounding from a loss of 0.8 per cent on Monday. Oil fell to $136.04, down from last week’s record $145.85. The dollar was up 0.4 per cent versus the euro.