Alan Greenspan said he saw signs that the recent worries in the markets may be easing.

He said it was plausible that the "current episode of investor fright might dissipate."

His comments came in a speech to the Securities Industry Association, made by videoconference.

Markets had been eagerly awaiting his remarks for any hint about a potential cut in interest rates when the Federal open Market Committee meets on 17 November.

But Mr Greenspan made no comment about the US or global economic outlook.

Analysts said the fact he had not mentioned anything about monetary policy meant the Federal Reserve was reasonably happy about the current situation and was unlikely to alter interest rates.

Over lending to blame

In his speech, Mr Greenspan also said the financial crisis gripping Asia was caused in part by highly leveraged lending, which must be curbed in future.

The all-powerful US Federal Reserve bank

In a globally linked economy, he said contagion was "clearly enhanced by leverage" and consideration must be given to discouraging excess leverage that leads to excess debt.

He said a striking difference between the current bout of global turmoil and past such episodes was the increased speed with which capital shifted between countries.

He said one lesson to be taken was that capital controls, which had helped contain international flows in the past, were unlikely to be effective in future and could dry up capital investment flows to economies that apply them.

Sound policies needed

Mr Greenspan said countries hit by crisis also had a responsibility to adopt sound policies, including improved bankruptcy procedures.

Until the current global financial and economic crisis was resolved, help must come from international lending institutions but he warned it must not undermine market discipline.

The great fear in international markets over the last few months has been that firms throughout the world might find it increasingly difficult to borrow money to keep their businesses going.

Japan has been in the midst of such a problem, a "credit crunch" for many months.

There have been early signs of the problem spreading to the US and UK.

This would increase the risks of recession and a rise in unemployment.

The problem arose after the Russian debt and currency crisis which began in August.

In the wake of Asia's problems of a year earlier, many lenders decided to move into low risk lending.