US President George W. Bush will consider new measures to boost the US economy should it take a turn for the worse, the White House budget director said on Wednesday.

Despite the recent sell-off in the stock market, Mitch Daniels, the director of the White House Office of Management and Budget, said the US economic growth was "exceeding expectations for the moment."

But he added: "If there should be some wobble in that, this president will be very quick to look for more options ... to make sure that the economy is growing."

Several business groups are advocating a capital gains tax cut and other measures that could encourage investors back into the stock market.

Bush and his Republican allies in Congress are under fire from Democrats for their response to a wave of accounting scandals which have eroded investor confidence and fueled a sharp drop in stocks.

With polls showing his public standing was threatened for the first time since the September 11 attacks, Bush rallied behind legislation that would increase oversight of auditors and impose tougher penalties on corporate misconduct.

"This government will investigate, will arrest and will prosecute corporate executives who break the law," Bush said as stocks rebounded sharply on Wednesday.

The Dow Jones Industrial average surged 488.95 points, or 6.35 per cent, to close at 8,191.29, as investors bought stocks at prices cut down to multiyear lows after three weeks of relentless declines.

Daniels did not say which options Bush might consider to stimulate the economy should further turmoil in the stock markets lead to a slowdown in US growth.

But he said Bush's tax cuts and rebates proved effective in jump-starting growth after the economic shocks of last year's recession and the Sept. 11 attacks on New York and Washington. Economic growth surged in the first quarter, beating both government and private forecasts.

Some groups want Bush to eliminate taxes on dividends and reduce capital gains rates to spur investment.

The National Association of Manufacturers would like the Bush administration to let the US dollar slide another 15 to 20 per cent, and wants the Treasury to put pressure on the Japanese to stop intervening to keep the yen from rising versus the dollar. A drop in the dollar benefits US exporters.

But White House spokesman Ari Fleischer said Bush was focused for now on passing bills that would boost his ability to negotiate new trade pacts and make the government a backstop for insurers in the event of another terrorist attack.

"The government role should be to promote policies that promote soundness in the economy and focus on the fundamentals of the economy," Fleischer said.

"Over the course of time, and next year, will the president have additional policies, as part of next year's budget or anything else? I think it's way too premature to even focus on that."

While Bush's overall approval ratings remain high, his marks for managing the economy have slipped amid questions about his business dealings more than a decade ago at Harken Energy Corp.

In the run-up to the November elections, Democrats have also seized on Vice President Dick Cheney's tenure at Halliburton Co.

The Securities and Exchange Commission is investigating the firm's accounting practices.

The market turmoil and scrutiny of the administration's ties to business could benefit Democrats, according to polls which show a growing number of people believe Bush cares more about large corporations than average Americans.

Daniels said his office would do its part for the economy by finding ways to control federal spending and reduce budget deficits.

Earlier this month, the budget office said the federal government would post a deficit of $165 billion this fiscal year, 56 per cent more than earlier projections. Budget officials said a major factor was the decline in tax receipts from capital gains, which are generally collected from individuals when assets are sold at a profit. As stock values dropped this year, many investors racked up losses or held onto their shares. As a result, the government collected less.

Daniels said a prolonged sell-off in stocks could push the government even deeper into deficits. "It's a bigger phenomenon than it has ever been. We're going to have to watch very closely. We're going to watch it on a monthly basis."