'The smartest thing we can do is to keep taxes low,' he said, speaking to a business audience at the Union League Club of Chicago. 'In a time of economic uncertainty, we don't need to be taking money out of your pocket.'

President Bush and Treasury Secretary Henry Paulson hit the road to insist the economy was basically healthy despite strains in the housing market. Both indicated the White House was uncertain whether new stimulus measures were needed.

'The housing downturn has been a drag on the economy for some time, but there's not a lot of evidence that this has spilled over to other areas of our economy,' Mr Paulson told the New York Society of Financial Analysts.

Mr Paulson told a questioner who wanted to know whether a package of fiscal stimulus measures was forthcoming that Bush 'hasn't made a decision on whether he'll propose an action.'

Nothing is certain
President Bush said the economy was well positioned to withstand shocks from housing declines, financial market turmoil and surging oil prices, but warned that steady economic expansion was not a certainty.

'We have a strong foundation in our economy, but we can't take economic growth for granted,' he said.

'We confront economic challenges ... recent economic indicators have become increasingly mixed,' he added.

Mr Paulson similarly warned that bulging inventories of new but unsold homes, falling house prices and soft job growth will take a toll.

'We will likely have further indications of slower growth in the weeks and months ahead,' Paulson said. 'The overhang of unsold houses will contribute to a prolonged adjustment, and poses by far the biggest downside risk.'

President Bush and Mr Paulson's comments come after reports last week showing a meager 18,000 new jobs were created in December and that factory activity appeared to have contracted, signs the housing slump and market woes have dented the wider economy.

The president said last week his administration is considering all options to help the economy past the slowdown, but said that he would not make a decision on whether any specific new action is needed until he gives his annual State of the Union address on Jan 28.

Taxes an issue
President Bush's 2001 and 2003 tax cuts, enacted to give the economy a lift after September 2001 terror attacks and help it past a business-led slowdown, have become an issue in 2008 presidential campaigning.

Top contenders for the Democratic nomination have promised to try to roll back his tax reductions for the wealthiest Americans, while the major Republican contenders would try to make the cuts permanent.

On Capitol Hill, New York Democratic Senator Charles Schumer said President Bush's 'adamancy and ideological rigidity' about low taxes threatened efforts to prevent an economic slowdown from spiralling into recession.

Amid the lacklustre economic data of the past few weeks, White House hopeful Hillary Clinton on Saturday raised worries about the economy during a weekend debate in New Hampshire.

'I think the economy is slipping towards recession,' the New York senator and former first lady said, highlighting the jump in oil prices and weaker jobs data.

In his speech on Monday, the president called on Congress to pass a bill to expand the Federal Housing Administration programme to make it easier for US homeowners to refinance their mortgages. The Senate and House of Representatives have each passed their own version of FHA reform and lawmakers in the two chambers need to reconcile their differences.

He also used his remarks to argue against imposing new regulatory burdens on businesses and said it was important to continue to look for ways to open markets for US products overseas.-- REUTERS