Bernanke did admit that the government may have to increase its stake in Citigroup, but without going ahead with a full nationalisation programme.

"It may be the case that the government will have a substantial minority share in Citi or other banks, but again we have the tools... [to] make sure that we get the good results we want... without all the negative impact of going through a bankruptcy process or some kind of seizure," Bernanke told the US House of Representatives Financial Services Committee.

The stress tests, which should be completed by the end of April, will help regulators decide whether 14 major US banks have sufficient capital to withstand any additional financial shocks to the economy over the next two years.

Al Jazeera's John Terrett, reporting from New York, said many politicians believed that it was likely some banks would end up being nationalised as part of the process.

Housing slump

Meanwhile the National Association of Realtors said sales of existing homes fell 5.3 per cent to an annual rate of 4.49 million in January, from 4.74 million units in December, the worst figures since July 1997.

The US housing market collapse contributed
to the current economic crisis [EPA]
Analysts had expected the sales figures to rise.

In addition, the average sales price for US homes fell to $170,300, down 14.8 per cent from $199,800 a year earlier, the lowest price since March 2003 and the second-largest drop on record.

The group said it estimated that about 45 per cent of sales nationwide were foreclosures or other "distressed" property sales.

The US financial meltdown was triggered in part by the subprime mortgage crisis, where people were granted mortgages they were unable to repay, sparking a wave of house foreclosures and debt.

The Dow Jones Industrial Average fell 80.05 points, or 1.09 per cent, to end the trading day at 7,270.89, after larger falls earlier in the day amid continued uneasiness about the steps the government is taking to help struggling banks and the US economy.