In his first appearance before Congress following a testy confirmation vote in the Senate last month, Bernanke offered a relatively somber assessment of the US economy despite recent signs of strong growth.

The country has lost 8.4 million jobs in a little more than two years in the most severe economic downturn since the Great Depression. The Fed chief said job losses were abating, but also acknowledged the recession's toll on American workers.

"Notwithstanding the positive signs, the job market remains quite weak," Bernanke told the US House of Representatives Financial Services Committee.

Bernanke said the US central bank's policy-setting Federal Open Market Committee was prepared to support the economy with extraordinary stimulus for some time.

"The FOMC continues to anticipate that economic conditions - including low rates of resource utilization, subdued inflation trends, and stable inflation expectations - are likely to warrant exceptionally low levels of the federal funds rate for an extended period," he said, echoing the Fed's most recent policy statement in late January.

Fed officials have suggested they would likely wait several months after removing the "extended period" phrase from their policy statement before proceeding to raise the benchmark overnight interbank interest rate.

US stocks were solidly higher as bank shares benefited from Bernanke's vow to keep rates on hold for a prolonged period, ignoring a surprisingly weak report on new home sales report that highlighted the Fed's predicament.

New home sales slumped more than 11 percent in January even as the central bank's purchase of mortgage-related bonds and a home-buyer tax credit continued to support the market. Many analysts worry things could get even uglier over coming months, after both those programs expire.

"We may be in for a rough ride in housing," said Adam York, economist at Wells Fargo in Charlotte, North Carolina.

Commercial real estate, where defaults are supposed to spike this year, also remains a key concern. Bernanke called it "the biggest credit issue we still have." Bernanke's reassurances about keeping rate increases at bay also helped US government bonds erase losses, and drove the dollar lower against the euro and Japanese yen. Interest rate futures pared expectations of rate hikes before year-end.

Legislators on both sides of the isle used the hearing to play out the ongoing tug-of-war in Congress over budget deficits. Committee Chairman Barney Frank leaned on Bernanke to argue that the fiscal stimulus measures enacted by Democrats have helped alleviate some of the nation's employment losses.

Republicans, for their part, wanted Bernanke's view on the long-term implications of the government's funding gap, which he said was not on a sustainable path.

"Under current projections, we have a deficit and a debt that will continue to grow," Bernanke said. Still, Bernanke said he did not believe the US credit rating would be downgraded.

The Fed last week surprised markets by raising the discount rate it charges on direct emergency loans to banks.

The increase spurred fears that the central bank was about to embark on a broader push for higher borrowing costs, even though the Fed maintained the federal funds rate, its main policy tool, in a range of zero to 0.25 percent.

The central bank said the discount rate move was an effort to pull back on the measures it had taken to increase liquidity in financial markets, and did not presage tighter monetary policy, a message repeated by Bernanke on Wednesday.

Meanwhile, the Senate passed a modest jobs-creation bill on Wednesday and laid the groundwork for a larger package that would advance Democrats' goal of bringing down the stubbornly high US unemployment rate.

By a 70-28 vote, the Senate approved a $15 billion package of tax breaks and highway spending and sent it on to the House of Representatives, which could approve the measure quickly for President Barack Obama to sign into law.

Immediately after the vote, Senate Majority Leader Harry Reid said he was readying a package of jobless benefits, state aid and tax breaks that the Senate could take up next week.

Democrats are also preparing a bill to boost lending to small businesses that could use money left over from bank bailout, he said.

"Today's progress is a small step forward, and an important step forward," Reid said. "We have other things in

mind."

The vote provided a much-needed victory ahead of the November congressional elections for Obama and his fellow

Democrats, who say their top priority this year is to bring down the 9.7 percent unemployment rate.

The vote, in which 13 Republicans joined 55 Democrats and two independents, masked partisan tensions that had earlier threatened to derail the bill.