US CENTRAL bankers last night said they would hold interest rates at historic lows for at least two years in an effort to boost confidence in the economy. The move, the first time the US Federal Reserve has committed itself to such an action, came on a day when stock markets recovered some of the ground lost in recent tumultuous sessions.

However, it was unclear whether the decision, which involved no new commitment of funds for bond purchases, would be enough to prop up a US stock market that has fallen more than 15 per cent in the last two weeks.

Stock markets appeared confused by the decision, with the Dow Jones and the SP 500 both dipping sharply in the immediate aftermath only to rise by more than 6 per cent in the closing hour of the session.

In Europe, investors ended a 10- day losing run with a relief rally that followed sharp falls in early trading.

But in a sign of continuing nervousness over a slowdown in global growth and the ongoing euro zone debt crisis, the price of safe havens such as gold and the Swiss franc continued to rise to record levels.

Bond markets continued to steady as the European Central Bank again intervened to support Italian and Spanish debt. The yield on 10-year Italian bonds has dropped to 5.11 per cent, while the Spanish rate has declined to just over 5 per cent.

Ireland’s 10-year bond yield stood at 9.90 per cent after falling below the 10 per cent mark yesterday for the first time since April.

However, ECB president Jean-Claude Trichet again urged euro zone governments to play their part, particularly in getting speedy parliamentary approval for enhanced bailout measures agreed on July 21st.

“What we have is a problem of confidence at the moment in the international economy,” said Mr Trichet. “What we need is for governments to do what we consider to be their job.”

European stock markets, which have experienced falls of up to 20 per cent over the past 2½ weeks, steadied in afternoon trading with most ending slightly higher.

London’s FTSE 100 rose 1.9 per cent after plunging as much as 5.5 per cent earlier. France’s CAC 40 also rebounded from early losses to end 1.6 per cent up, while Germany’s DAX index fell 0.1 per cent.

However, fears for the health of the global economy were reinforced by poor inflation figures from China.

Investor concerns prompted the price of gold to hit a new record of $1,778 an ounce. Oil slumped to its lowest level in six months. – (Additional reporting: Reuters)