WASHINGTON — Federal Reserve Chairman Ben Bernanke said removing the central bank from bank supervision and tampering with its political independence would "seriously impair" economic stability in the U.S.

"A number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions," the Fed chairman said in a commentary released on the Web site of the Washington Post.

The measures "would seriously impair the prospects for economic and financial stability in the U.S."

Bernanke has presided over the most expansive use of Fed powers since the Great Depression. While the 55-year-old Fed chairman has said he averted a financial meltdown, lawmakers have voiced concern about taxpayer-sponsored bailouts and proposed the most sweeping dismantlement of the Federal Reserve's authority since the creation of the institution in 1913.

WORLD FINANCIAL MARKETS FALL ON DUBAI DEBT NEWS

NEW YORK — Dubai's debt crisis rattled world financial markets yesterday, raising concerns that some banks could further tighten lending and stall the global recovery.

Stock and commodity markets tumbled in New York, London and Asia as investors flocked to the U.S. dollar as a safe haven. But earlier concerns that the crisis might trigger another financial meltdown seemed to ease after some analysts downplayed the risks for U.S. banks, which are thought to have little exposure to the Middle Eastern city-state.

U.S. stocks fell sharply but rebounded from their lows as investors concluded that the damage might be contained. The Dow Jones industrial average lost about 155 points, or roughly 1.5 percent, in a shortened trading day, and other stock averages also sank.

JAPAN'S SURGING YEN THREATENS ECONOMY

TOKYO — Japan got word yesterday that prices fell again in October, just as a surging yen threatens to worsen the deflation that is undermining the country's fragile economy.

The core consumer price index, which excludes volatile fresh food, retreated at a near-record pace of 2.2 percent from a year earlier, the government said. Prices have now fallen for eight straight months — a trend that the government highlighted last week for the first time in three years.

The news came amid heightened concern over the Japanese currency, which hit a new 14-year high against the dollar in early Asian trading.

Falling prices, which plagued Japan during its "Lost Decade" in the 1990s, may sound like a good thing. But deflation can hamper economic growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases.