The US Federal Reserve accompanied a widelyexpected quarter-point increase in its benchmark interest rate last night with a warning that there could be more to come.

The Fed raised its federal funds rate to 5.25 per cent, its 17th increase in a row over the past two years, but did so with a statement saying inflation risks remain even though slowing economic growth should help ease price pressures.

Hopes have been rising in financial markets round the world this week that the Fed might be content to wind up its two-year drive to raise the cost of borrowing campaign after raising its federal funds rate, as it did, to its highest level since March 2001.

But in the statement announcing the move the Fed's interest-setting committee - meeting for just the third time under new Fed chairman Ben Bernanke - held open the possibility of further rises.

"Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the committee judges that some inflation risks remain," it said.

"The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

Initially markets looked on the bright side. US stocks and government bond prices both went higher and the dollar eased as markets saw the statement as lacking a clear signal either way.

It was more evenly balanced than recent tough remarks by Mr Bernanke.