GREENSPAN CAUTIOUS; WARNING SHOT FIRED AT STOCKS.

Byline: Dave Skidmore Associated Press 

A week after Wall Street shrugged off a new bout of global turbulence, this one coming from Brazil, Federal Reserve Chairman Alan Greenspan issued a fresh warning to the high-flying stock market. But investors barely flinched.

Greenspan told lawmakers Wednesday that he saw three primary threats to the U.S. economy: a mushrooming trade deficit caused by spreading recessions overseas, a potentially inflationary shortage of workers and an unsustainably high stock market.

Wall Street's recent performance ``will have difficulty in being sustained'' since corporate profit growth has slowed down, he told the House Ways and Means Committee. In fact, the market's quick rebound after a scare this fall from the collapse of the Russian economy was unusual, the central bank chairman said.

The Dow Jones industrial average fell 54 points from the previous day's close upon the release of Greenspan's remarks, his first comprehensive assessment of economic conditions in three months. But it soon recovered and was up as much as 125 points before closing at 9,336 for a loss of 19 points.

``The markets aren't listening,'' said economist Mark Zandi of Regional Financial Associates in West Chester, Pa. ``They're running to the beat of their own drummer.''

Greenspan's testimony suggested the central bank has no immediate plans to cut interest rates, and some might have heard it as justification for a rate increase later in the year, Zandi said.

Fed policy-makers cut rates three times in seven weeks in the fall, cushioning the financial system against spillover from Russia's severe problem. Greenspan said he and his colleagues were concerned about the likely impact of the turmoil on the U.S. economy but ``were not attempting to prop up equity prices'' at a specific level.

``In the current state of financial markets, policy-makers are going to have to be particularly wary of actions that unnecessarily sow uncertainties, undermine confidence and interfere with the efficient allocation of capital on which our economic prosperity and asset values rest.''

- Alan Greenspan

IN BRIEF

Federal Reserve Chairman Alan Greenspan touched on a number of subjects when he spoke to the House Ways and Means Committee. In his testimony, Greenspan:

Trashed President Clinton's plan to invest government funds in the stock market in order to produce more revenue for the Social Security retirement system.

Opposed any major tax cuts.

Called the U.S. economy's performance sparkling.

Warned that current high stock prices are unsustainable.

CAPTION(S):

Photo, Box

PHOTO (Color) Federal Reserve head Alan Greenspan testifies Wednesday to the House Ways and Means Committee.

Doug Mills/Associated Press

BOX: IN BRIEF (See text)