Bush, Bernanke to launch twin subprime assault

By Mike Peacock

LONDON (Reuters) - U.S. President George W. Bush will outline reforms on Friday to help struggling subprime mortgage borrowers and his central bank chief will deliver a speech which will be pored over for hints of a looming rate cut.

Federal Reserve Chairman Ben Bernanke speaks on "Housing and Monetary Policy" at around 1400 GMT (3:00 p.m. BST)

Bush, who will make a statement at the White House an hour later, will announce assistance for homeowners with subprime mortgages to avoid default via changes to the tax code.

"He will also discuss reform efforts to prevent these kinds of problems from arising in the future," a senior U.S. administration official said.

Massive problems with U.S. home loans, stemming from aggressive lending to mainly poor people who have been squeezed as interest rates climbed, have fostered a liquidity crisis around the globe as banks have scrambled to calculate their exposure to the sector.

The risk of a credit squeeze arising from mass mortgage defaults has also raised the prospect of U.S. consumers trimming spending at a rate that could tip the world's largest economy into recession.

Investors have been pinning their hopes on an interest rate cut by the Fed, at its next meeting on September 18, to shore up the U.S. economy and stop the sickness spreading.

Bernanke reiterated on Wednesday the Fed was "prepared to act as needed" to ensure credit market problems do not adversely affect the economy, fuelling speculation the central bank will lower its benchmark federal funds rate from 5.25 percent.