The US Federal Reserve has kept interest rates on hold at 1.25% - a 41-year low.

Policymakers are in a wait-and-see mode Gary Thayer, chief economist AG Edwards & Sons

The move was widely expected following last month's surprisingly large rate cut of half a percentage point.

The Fed said that risks to the economy continued to be balanced between economic weakness and the threat of inflation.

"The limited number of incoming economic indicators since the November meeting, taken together, are not inconsistent with the economy working its way through its current soft spot," the Federal Open Market Committee (FOMC) said in a statement.

The committee voted unanimously in favour of keeping rates on hold.

'Appropriate decision'

Recent economic indicators have suggested the US economy is not recovering as strongly as had been hoped.

Last Friday, official figures showed the unemployment rate jumped to 6% in November from 5.7% the previous month.

And on Tuesday, a weekly retail survey showed sales at US chain stores fell last week.

But other figures released on Tuesday showed that stockpiles of goods on U.S. wholesalers' shelves fell in October, raising hopes that orders for new goods may pick up.

Analysts said the Fed had made the right choice, and is likely to leave rates unchanged for some time.

"It was an appropriate decision," said Gary Thayer, chief economist at AG Edwards & Sons.

"Policymakers are in a wait-and-see mode.

"They cut rates at the last policy meeting. We also have a new Congress that is likely to put in place some more pro-growth policies at the start of the year."

Government action

Following last week's removal of Treasury Secretary Paul O'Neill and White House economic adviser Lawrence Lindsey, the Bush administration is expected to push ahead with a programme of tax cuts and other measures aimed at getting the US economy moving.

Analysts say these measures should take some of the pressure off the Fed to cut rates any further.

Financial markets gave little reaction to the Fed's decision as they had been expecting no change.

On Wall Street the Dow Jones share index closed up 100.85 points at 8,574.26.