U.S. President Barack Obama (R) announces his nomination of Janet Yellen to head the Federal Reserve, at the White House in Washington October 9, 2013. REUTERS/Kevin Lamarque

By Jeff Mason and Mark Felsenthal

WASHINGTON (Reuters) - President Barack Obama nominated Federal Reserve Vice Chair Janet Yellen on Wednesday to run the world's most influential central bank, praising her consensus-building skills and saying more needed to be done to boost U.S. employment.

Yellen, an advocate for aggressive action to stimulate economic growth through low interest rates and large-scale bond purchases, would replace Fed Chairman Ben Bernanke, whose second term ends on January 31.

The nomination will put Yellen on course to be the first woman to lead the institution and the first to head a central bank in any Group of Seven industrial nation.

"Janet is exceptionally well qualified for this role," Obama said at a White House ceremony, with a beaming Yellen standing by his side. "She doesn't have a crystal ball, but what she does have is a keen understanding about how markets and the economy work, not just in theory but also in the real world. And she calls it like she sees it."

If confirmed by the U.S. Senate, which is expected to endorse her despite some Republican opposition, Yellen would provide continuity with the policies the Bernanke-led Fed has pursued. She would likely move cautiously in reining in monetary stimulus put in place to shore up the world's largest economy.

Yellen, who spoke briefly after Obama, said she would promote maximum employment, stable prices, and a sound financial system. She said there was more to do to ensure people who were out of work could find jobs.

"While we have made progress, we have farther to go. The mandate of the Federal Reserve is to serve all the American people, and too many Americans still can't find a job and worry how they'll pay their bills and provide for their families," Yellen said.

"The Federal Reserve can help if it does its job effectively."

While she spoke, the president stood close by her side, looking at her attentively. When she was done, he clasped her hand warmly and put his hand on her shoulder, applauding as they left the room together with Bernanke.

Some analysts said Yellen's likely policy approach should be supportive for stock markets that have come to rely on easy money from the Fed, but the market reaction on Wednesday did not provide a clear read on investor sentiment.

Stocks closed modestly higher, lifted in part by rising hopes Congress could break a political impasse that has led to a partial government shutdown and that now threatens a possible default. The U.S. Treasury has warned it could quickly run out of cash to pay the nation's bills if lawmakers do not raise the government's $16.7 trillion debt ceiling soon.

STRONG BACKING IN THE SENATE

Obama settled on Yellen, 67, after his former economic adviser Lawrence Summers withdrew from consideration in the face of fierce opposition from within the president's own Democratic Party, raising questions about his chances of congressional confirmation.

With markets jittery about a potential U.S. default, Obama appeared to want to provide reassurance with his announcement of Yellen. He noted her ability to reach consensus with colleagues - something Summers' opponents say he lacked - and her success at predicting the risks of a major recession before it happened.

"Given the urgent economic challenges facing our nation, I urge the Senate to confirm Janet without delay," Obama said. "I am absolutely confident that she will be an exceptional chair of the Federal Reserve."

Yellen is expected to get strong backing in the Senate, especially from her fellow Democrats, though some Republicans have raised concerns.

Yellen made clear she would focus squarely on continuing the Fed's efforts to strengthen the economic recovery and to boost employment - points that could rub some Republican lawmakers, who think the Fed has pumped too much money into the economy, the wrong way.

"Ms. Yellen subscribes to the liberal school of thought that the best way to handle our nation's fiscal challenges is to throw more money at them," said Senator John Cornyn of Texas, the body's No. 2 Republican.

Yellen also nodded to the importance of the Fed's other job - keeping inflation in check.

She is expected to gain enough support to secure the 60 votes needed to overcome any procedural hurdles in the 100-seat Senate. Democrats control the chamber 54-46.

"Janet is exceptionally well qualified for the position, with stellar academic credentials and a strong record as a leader and a policymaker," Bernanke said in a statement.

(Additional reporting by Steve Holland, Alister Bull, and Roberta Rampton; Editing by Grant McCool and Tim Dobbyn)