US President George W. Bush said yesterday he would support the reappointment of Mr Alan Greenspan as chairman of the Federal Reserve, quashing rumours that a dispute over the White House's tax plans could lead to his removal.

The statement comes amid a concerted effort by the Bush administration to reassure consumers and investors that it has not been distracted from focusing on the economy by the war in Iraq.

"I think Alan Greenspan should get another term," Mr Bush said during a meeting with reporters. The Fed declined to say, and the White House said it did not know, whether he would seek to remain as chairman after his term expires next year.

But most observers thought Mr Greenspan, who turned 77 this year, would be keen to continue. He was yesterday due to undergo surgery on his prostate, though the Fed described it as a routine operation that did not require general anaesthetic. He was expected to be back at work in a few days.

Reappointment as chairman, a post he has held since 1987, would keep Mr Greenspan in office until late January 2006, when his non-renewable 14-year term as a governor of the Fed comes to an end. It would also spare President Bush from having to change Fed chairman in an election year.

White House officials have expressed confidence in Mr Greenspan.

But some observers said his recent criticism of the administration's plans for tax cuts, which he said risked creating damaging budget deficits in the medium term, had placed his reappointment in jeopardy.

The recent weak performance of the US economy, which has struggled to make a sustained recovery from the 2001 recession, has also laid Mr Greenspan's conduct as Fed chairman open to criticism.

But Fed-watchers said yesterday's announcement indicated that such factors did not override the boost to confidence which would come from continuity at the top of the Fed.

"Despite lots of questions about whether his halo has been tarnished, it shows they think he is a great Fed chairman and they want to keep him," said Mr Richard Berner, US economist at Morgan Stanley in New York.

The announcement came more than a year before his current term expires much earlier than most observers had expected.

Financial markets showed little immediate reaction to the White House statement yesterday.