President Bush has heralded the end of an 18-year era at the Federal Reserve Board by nominating Ben Bernanke, chairman of his Council of Economic Advisers, to succeed Alan Greenspan as Fed chairman.

A former Federal Reserve governor and Princeton economist, Mr Bernanke must be confirmed by the US Senate before he can succeed Mr Greenspan as head of the United States central bank next January.

"He has earned a reputation for intellectual rigour and integrity, he commands deep respect in the global financial community and he will be an outstanding chairman of the Federal Reserve Board," Mr Bush said.

Mr Bernanke said that monetary policy had evolved during Mr Greenspan's tenure and would continue to evolve in the future.

"However, if I am confirmed to this position, my first priority will be to maintain continuity with the policy and policy strategies established during the Greenspan years."

After 18 years in office, Mr Greenspan will be a tough act to follow and markets have traditionally reacted somewhat nervously to new Fed chairmen.

Mr Bush praised Mr Greenspan yesterday, describing him as a legend.

"Under a steady chairmanship, the United States economy has come through a stock market crash, financial crises from Mexico to Asia, two recessions, corporate scandals, and shocks ranging from devastating national disasters to a terrorist attack in the heart of America's financial center.

"Through all these challenges, chairman Greenspan's prudent judgment and wise policies have kept inflation low.

"He's played a major role in America's strong economic growth.

"He has dominated his age like no central banker in history," Mr Bush said.

Mr Bernanke has disagreed with Mr Greenspan on the best way to fight inflation, favouring an inflation target similar to the European Central Bank's (ECB) aim of keeping inflation close to 2 per cent.

"I think that announcing a target would strengthen our commitment to the price-stability objective and also give more emphasis to long-run considerations in policy making," Mr Bernanke said in an interview last year.

The Fed has moved to raise interest rates in recent months in order to counter rising inflation and rates are expected to rise a further 0.25 per cent to 4 per cent next week.

Markets expect interest rates to reach 4.5 per cent by the end of January, when Mr Greenspan leaves office.

The Dow Jones surged on the news - however bond markets softened yesterday amid traders' concerns that Mr Bernanke might be less inclined than Mr Greenspan to increase interest rates.

Highly respected in the academic world and popular on Wall Street, Mr Bernanke was considered favourite to succeed Mr Greenspan and his nomination is likely to be approved by the Senate.

He could face tough questioning from Democrats, however, about his support for Mr Bush's economic policies, particularly the administration's relaxed approach to the soaring budget deficit.

Mr Greenspan has left the US economy with robust growth and low unemployment but inflation continues on an upward curve, rising as consumer confidence falls and fuel prices soar.

If Mr Bernanke is confirmed, he will serve an initial term of four years but could remain chairman for up to 14 years if future presidents decide to reappoint him.