Bernanke: US economy 'close to faltering'

US Federal Reserve chairman Ben Bernanke has told Congress the US economy is "close to faltering" and more action may be needed.

Markets responded positively as the head of the Fed said he was "prepared to take further action as appropriate" to bolster the recovery, the BBC reports.

His comments come after the Fed already decided to shift $400bn of investments into longer-term government debt.

Bernanke said Operation Twist was the equivalent of a half-percentage-point cut in interest rates, and gave a "meaningful, but not an enormous support to the economy".

But he warned the eurozone debt crisis, as well as overly hasty spending cuts by the federal government, risked undermining the US recovery.

Bernanke said there was little help the US could offer to solve the eurozone debt crisis.

"The problems are not really economic, they're political," he said. "Because what they are trying to do is find solutions that are acceptable to 17 different countries, which you can imagine is very difficult."

He said the US was an "innocent bystander" to the crisis but the risk was a disorderly default could trigger a run on other eurozone governments and a banking crisis, which would hit the US badly.

The Fed chairman also appeared to lend support to those seeking to take action against China's policy of buying up US debts - which has the effect of holding down the value of the yuan at a more competitive exchange rate, according to the BBC.

"Chinese policy is blocking what might be a more normal recovery process in the global economy," said Bernanke.

The US Senate has just begun a week-long debate on a bill that would threaten China, and other countries accused of keeping their currencies unfairly cheap, with trade sanctions.