Fed's Bernanke watching dollar drop closely

By Kristina Cooke

NEW YORK (Reuters) - The U.S. central bank is monitoring the declining value of the dollar closely as part of its commitment to both jobs growth and price stability, Federal Reserve Chairman Ben Bernanke said on Monday.

In a rare commentary on the value of the dollar, Bernanke drew a link between its current weakness and inflation risks.

However, he said there were other factors helping to restrain inflation in the United States, and he repeated that the Fed is likely to keep interest rates exceptionally low for "an extended period."

"We are attentive to implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability," he told the Economic Club of New York.

The central bank would need to raise rates to lift the dollar's value, but that could harm economic recovery.

Fed officials usually defer to the Treasury secretary on issues relating to the dollar's value, and the greenback pared losses against the yen and gained against the euro on Bernanke's remarks. <USD/>

"Bernanke finally is doing what any self respecting central banker does, admit that the weakness of the reserve currency of the world matters," said Peter Boockvar, an equity strategist at Miller Tabak and Co in New York.

Bernanke noted that the currency's recent decline had been a factor helping to push commodity prices higher. However, he also said a high level of slack in the economy and stable longer-run inflation expectations should keep price pressures under wraps.