Warning that mortgage delinquencies and foreclosures are likely to rise, with more declines in house prices, Bernanke called for active measures from both the public and private sectors to stabilize housing markets.

"This situation calls for a vigorous response," Bernanke said in a speech to the Independent Community Bankers of America, referring to government and private-sector initiatives to slow the rate of home loan failures.

"Measures to reduce preventable foreclosures could help not only stressed borrowers but also their communities and, indeed, the broader economy," he said.

U.S. government bond prices shed early losses and turned higher, while stocks extended their declines and the downtrodden dollar touched another all-time low against a basket of currencies.

Market bets of a Fed rate cut at its March 18 meeting ticked down slightly to roughly a 66 percent chance of a cut in benchmark interest rates by three-quarters of a percentage point from the current 3 percent.

Bernanke's comments come as the central bank grapples with the twin dilemmas of a slowing economy and rising inflation. U.S. economic growth slowed to a sluggish 0.6 percent at the end of 2007 and hiring declined in January. But inflation rose 4.1 percent in 2007, the largest 12-month rise since 1990.

Current housing difficulties differ from past housing market slumps because of the large number of homeowners who owe more on their loans than their homes are worth, Bernanke said.