The Federal Reserve left interest rates on hold yesterday but continued to signal concern at the weakness of the economic recovery.

The decision to leave rates at 1.75 per cent for the sixth successive meeting, which had been widely predicted by economists, showed that the Fed was still in watch-and-wait mode alert to any signs of further weakening but still hopeful that the economy would pull round of its own accord.

As at its previous meeting, in August, the Fed's open markets committee warned in a statement released with the decision that the risks to the economy were weighted towards the downside.

But two members of the committee - board governor Mr Edward Gramlich and Mr Robert McTeer, president of the Dallas Fed - dissented from the decision, saying they wanted a cut in rates.

The financial markets had also expected rates to stay on hold, though the perceived probability of a quarter-point cut drifted up to 25 per cent last week following sharp falls in share prices.

Signs of softening demand for labour and fears over a war with Iraq have also concerned investors.

Stocks yesterday displayed some resilience in the run-up to the meeting, helped by a consumer confidence survey which showed that sentiment had been less affected by weak job growth than many economists had feared.

The Conference Board, a research consultancy, said its measure of consumer confidence fell to 93.3 in September from a revised 94.5 last month.

Though that was the lowest reading since November last year, investors took some cheer from the numbers, which had been expected to fall still further.

The survey also revealed that while respondents were much gloomier about current business conditions, they were decidedly more optimistic about the future.

"Weak labour market conditions continue to erode confidence," said Mr Lynn Franco, director of the Conference Board's consumer research centre.

"But while consumers are not as positive about current business conditions, they are more optimistic about the outlook than last month.

"Historically, this trend is prevalent during a recovery."

Earlier falls in share prices were partially reversed after the numbers were released.

With business investment still to show a definitive pick-up, the US consumer remains important in keeping the economy on track. Mr Alan Greenspan, chairman of the Federal Reserve, has urged policy-makers and economists to watch how consumers behave, rather than how they respond to surveys. - (Financial Times Service)