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WASHINGTON (Reuters) - Janet Yellen on Thursday robustly defended the Federal Reserve's bold steps to spur economic growth, calling efforts to boost hiring an "imperative" at a hearing into her nomination to become the first woman to lead the U.S. central bank.
Answering questions before the Senate Banking Committee, Yellen made plain she would press forward with the Fed's ultra-easy monetary policy until officials were confident a durable economic recovery was in place that could sustain job creation.
"I consider it imperative that we do what we can to promote a very strong recovery," Yellen, currently the Fed's vice chair, told the panel.
If confirmed by the Senate, as widely expected, the former professor and long-time public servant will become the most powerful woman in the history of world finance.
Yellen said the central bank's bond buying, which some Republican lawmakers fear risks stoking inflation or asset bubbles, could not continue forever, emphasizing that the Fed was acutely aware the program had costs as well as benefits.
But she said the benefits outweighed the costs right now, and made clear any decision to reduce the current $85 billion per month purchase pace would be driven by economic data.
"I do not see the program as continuing indefinitely," Yellen said. "We ... are attempting to assess whether or not we have seen meaningful progress in the labor market. And what the (Fed's policy) committee is looking for is signs we will have growth that is strong enough to promote continued progress."
The Fed has held interest rates near zero since late 2008 and has quadrupled its balance sheet to $3.8 trillion through three massive rounds of bond purchases.
Investors in stocks and bonds welcomed Yellen's commitment to drive a stronger recovery. U.S. stocks hit session highs as she testified, with the Dow and S&P 500 reaching record highs. U.S. Treasury debt prices also rose, as did spot gold prices.
Nonetheless, analysts said she simply bolstered expectations that she would favor continuity with the policies of current Fed Chairman Ben Bernanke, whose term expires at the end of January.
"She hasn't given anything away specifically with regards to the timetable of any QE tapering," said Philip Shaw, chief economist at Investec in London. "It seems that policy remains driven by data for the time being."
Nominated by President Barack Obama in October to replace Bernanke when his term ends, Yellen has long been viewed as a policy dove for her emphasis on the high cost of unemployment.
The banking committee, where Obama's Democrats occupy 12 of the 22 seats, needs to vet her credentials before sending her nomination to the full Senate for consideration.
Despite worries among some Republicans that she might not be tough enough on inflation - concerns that resurfaced during the hearing - she is expected to easily win confirmation.
Obama's Democrats control 55 of the Senate's 100 seats, which means the 67-year-old former economics professor needs to win backing from only five Republicans to reach the 60-vote threshold necessary to overcome any procedural hurdles.
It is not yet clear when lawmakers will debate and vote on her nomination.
Financial markets watched Yellen's performance closely, both for clues on future policy and to see how she would stand up under the pressure of the panel's questioning.
Yellen appeared poised, calm and well-prepared as she answered, and sometimes deflected, some pointed but largely respectful questions from the mainly male members of the panel.
The hearing featured little of the hostile rhetoric that Tea Party conservatives frequently level at the central bank, which they say has enabled runaway government spending by keeping borrowing costs so low.
Including prior stints at the San Francisco Fed and on the Fed's Washington board, Yellen has served as a policymaker at the central bank for nearly 12 years.
At one point, Bob Corker, a Republican from Tennessee and a thoughtful opponent of some of the Fed's unconventional measures to boost growth, went out of his way to point out she had never voted against a rate hike - offering her an opportunity to lean against perceptions she is too dovish.
He voted against her nomination as Fed vice chair in 2010.
Additional reporting by Emily Stephenson, Caren Bohan, Margaret Chadbourn and Anna Yukhananov in Washington and Marius Zaharia in London; Editing by James Dalgleish and Chizu Nomiyama