Wall Street reacts to Fed caution

Consumers are proving "resilient", Mr Bernanke said.

Uncertainty about the outlook for the US economy has increased, the US Federal Reserve chairman has said.

Ben Bernanke said that while troubles in the US housing market had not yet spread to the wider economy, the situation was being closely watched.

His comments unnerved investors, with the key Dow Jones index losing over 100 points on Wednesday.

That was despite figures showing US factory orders rising slightly in February, reversing January's fall.

'Uncertain'

"At this juncture ... the impact on the broader economy and financial markets of the problems in the sub-prime markets seems likely to be contained," Mr Bernanke told Congress' Joint Economic Committee.

The troubles - which have hit some of the biggest mortgage lenders in the US hard - raised "some additional questions about the housing sector", he added.

"Near-term prospects for the housing market remain uncertain," Mr Bernanke said.

The Dow Jones index closed down 102.30 points, 0.83% at 12,294.99 while the tech-heavy Nasdaq lost 20.3 points, also 0.83%, to 2,417.10.

There are fears on Wall Street that both consumers and businesses will spend less as economic concerns take hold - with data from the New York-based Conference Board earlier this week suggesting consumer confidence had slipped in March.

However, Mr Bernanke noted that consumers had been "quite resilient" despite worries about house values and rising petrol prices.

And despite the uncertainty, the Fed felt that the economy would continue to expand at a "moderate pace", he said.

However he warned that while core inflation had slowed "modestly" in the second half of 2006, more recent readings were still "uncomfortably high".

Separately, Commerce Department data showed that orders for durable goods rose 2.5% last month, after January's steep 9.3% fall.

Despite the improvement, the latest figures were worse than expected and analysts remain concerned about the health of the US economy.

Factory orders are seen as a critical indicator of investment by firms, and a key way to measure economic growth.

Last month's orders were boosted by a 9.6% growth in orders for goods such as planes and cars.

A dramatic 88% rise in orders for commercial aircraft, including of Boeing, helped the strong figures.