The US President said: "Hank shares my philosophy that the economy prospers when we trust the American people to save, spend and invest their money as they see fit."

Mr Paulson, whose appointment has to be approved by Congress, today described the American economy as "truly a marvel", but added: "We cannot take it for granted. We must take steps to maintain our competitive edge in the world."

Among the factors requiring his immediate attention will be mounting doubts over the future course of interest rates in America, worries over the country's massive trade and public spending deficits and fears over a possible cooling of the American housing market.

The appointment of one of the best-known figures on Wall Street to the administration's top economic and financial policy-making job will be seen as a coup for Mr Bush.

It had been speculated that the President would struggle to appoint a heavy hitter to the Treasury after several pundits said the position had become little more than a public relations role during Mr Bush's leadership.

It had also been questioned whether an administration role under the wing of Karl Rove, the President's powerful political advisor, could match the allure of a Wall Street pay package. Mr Paulson, who earned more than $38 million (£20m) from Goldman Sachs last year, will move onto a government salary of under $200,000.

The move will come as a blow for Goldman Sachs, where Mr Paulson has been chairman for more than eight years, reigning over an era of healthy profits and bumper deals.

Shares in Goldman dipped 1 per cent in morning deals in New York today. For more information on the company, click here.

The investment bank, known to its clients and employees as "the Firm", is one of Wall Street's most prestigious and has sent a number of its top executives to high positions in Washington. These include Robert Rubin, who was Treasury Secretary under Bill Clinton.

During his time in banking and deal-driven finance Mr Paulson has accumulated a fortune estimated at about $500 million.

He has also built up Goldman's presence in China where the bank is one of three underwriters on the massive stock-market float of Bank of China, which is set to trade later this week with proceeds of $10 billion.

However, Goldman has found itself in the spotlight in recent months after being linked to a number of failed acquisition drives, including an aborted bid for ITV.

The series of failures led Mr Paulson to place a moratorium on bankers using Goldman's money to finance takeovers and institute a ban on the bank advising on hostile deals.

Today a key Democrat voiced his support for Mr Paulson.

"I spoke with Hank Paulson this morning and pledged my full support for his nomination," Senator Charles Schumer, a member of the Senate Banking Committee, said.

"His experience, intelligence, and deep understanding of national and global economic issues make him the best pick America could have hoped for."

Commenting to CNBC, the financial news broadcaster, at the end of last week, Mr Snow said his tenure as Secretary was in the hands of Mr Bush. "I serve at the pleasure of the President," he said.

Mr Snow, the former head of the railway giant CSX Corp, had been in charge of the US Treasury since February 2003. His departure has been rumoured for more than a year.

Speculation that Mr Snow was to be replaced increased after Mr Bush started his White House shake-up to revive his Administration earlier this year, replacing Andrew Card as his chief of staff with Joshua Bolten, another former Goldman Sachs executive.

Gordon Brown, an avid follower of the US economy and its leading figures, today hailed the work of his "wonderful friend" John Snow, praising his work on Third World debt relief and on clamping down on finance for terrorists.

Mr Brown said he looked forward to continuing the "strong relationship" he forged with Mr Snow with his successor.

Andrew Busch, an analyst at the banking group BMO Nesbitt Burns, said Mr Paulson's nomination was a positive sign for markets.

"Coming from Wall Street, Paulson should carry a bit more gravitas for the financial markets as opposed to another corporate chieftain," he said.

Busch said that although the treasury secretary "has been marginalised as far as providing any leadership for US financial policy since Bush came to office," it was likely that Mr Paulson "must have received assurances from the White House that he would have a place at the policy table. This could be a big positive."

Times Recommends

• Times Charity Appeal: SolarAid
• Is it Black Monday all over again for Dubai?
• Behind the scenes at the biggest deal