Washington - The US economy continues to show signs of stabilizing and may be growing again by the end of the year, but recovery could be derailed if the fragile financial system plunges back into crisis, Federal Reserve Chairman Ben Bernanke said Tuesday.

Just days before the much-anticipated release of the government's "stress tests" on the health of US banks, Bernanke noted positive indicators over the last few weeks in housing, banking, consumer demand and confidence.

"The recent data ... suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, may be stabilizing," the US central bank head said in testimony before a joint congressional committee on the economy.

But he warned: "A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall."

The government on Thursday afternoon is set to release the findings of a series of "stress tests" on the country's top 19 banks - an investigation into whether these institutions have enough funds to survive the current economic downturn.

Financial news agency Bloomberg and the Wall Street Journal reported Tuesday that 10 of the 19 banks will be asked to boost their capital levels, citing "people familiar with the matter."

Bernanke offered no clues on the results of the stress tests, but he said the release was part of the financial system's "healing process" and should help boost market confidence.

Banks will have six months to comply with the government's demands. Most banks are likely to raise the extra funds privately, but Bernanke acknowledged some might have to return to the government for extra money if investors could not offer support.

Both the Federal Reserve and Treasury Department have already pumped hundreds of billions of dollars into US financial firms since the sector nearly collapsed in September. The Treasury Department still has about 100 billion dollars left from a 700-billion-dollar financial rescue package approved by Congress in October.

The US economy contracted more than 6 per cent in both the first quarter of this year and the final three months of 2008, amid one of the worst recessions since World War II.