U.S. President Barack Obama will nominate Ben Bernanke to a second term as chairman of the Federal Reserve on Tuesday as the economy shows signs of recovery, a senior administration official said on Monday.

Bernanke, whose appointment as head of the U.S. central bank must be confirmed by the Senate, has led the Fed and the U.S. economy through its most tumultuous period since the Great Depression of the 1930s. Obama's Democrats control the Senate.

Investors have given Bernanke high marks on the job and had widely expected him to be kept on by Obama, although the announcement was not expected until later this year.

Analysts said the early move by Obama -- before Bernanke's four-year term ended on January 31, 2010 -- would be welcomed by financial markets and would halt any lingering worries about who might lead the Fed as the economy bounces back.

I think it's very smart. It will be encouraging for the market, said Jim Awad, managing director at Zephyr Management in New York. He's viewed very positively -- he saved us from depression and the economy is recovering.

Bernanke, 55, was appointed by Obama's Republican predecessor President George W. Bush to succeed Alan Greenspan and is a widely respected monetary scholar who has long called for a more open central bank.

Critics say Bernanke was part of a Fed that failed to spot a ballooning housing bubble and stood idly by as risky lending proliferated, leading to the credit crisis.

'BOLD ACTION'

In remarks prepared for delivery at an event in Martha's Vineyard, Massachusetts, where Obama is on vacation, the president will also say the U.S. auto industry is showing signs of life and the U.S. credit and housing markets have been saved from collapse, the official said.

The man next to me, Ben Bernanke, has led the Fed through one of the worst financial crises that this nation and this world have ever faced, Obama will say in a statement to the media at 9 a.m. EDT/1300 GMT.

Obama will say Bernanke had dealt with the financial crisis with bold action and outside-the-box thinking that has helped put the brakes on our economic freefall.

Our auto industry is showing signs of life. Business investment is showing signs of stabilizing. Our housing market and credit markets have been saved from collapse, Obama will say.

Bernanke has mapped out his exit strategy to pull the economy back from exceptionally low interest rates and extricate the Fed from a flood of loans to financial markets without sparking unwanted inflation.

As an expert on the causes of the Great Depression, I'm sure Ben never imagined that he would be part of a team responsible for preventing another, Obama will say.

But because of his background, his temperament, his courage, and his creativity, that's exactly what he has helped to achieve. And that is why I am reappointing him to another term as Chairman of the Federal Reserve.

(Additional reporting by Megan Davies in New York and Anthony Boadle in Washington; Editing by John O'Callaghan and David Storey)

George W. Bush Barack obama Ben Bernanke