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Tuesday, 16 July, 2002, 14:11 GMT 15:11 UK
US recovery on track, says Greenspan
Federal Reserve chairman Alan Greenspan
Alan Greenspan: Accounting scandals nearly over
US Federal Reserve chairman Alan Greenspan has told the Senate that the US economy is set to recover despite recent stock market volatility.

"The fundamentals are in place for a return to sustained healthy growth," Mr Greenspan told the Senate Banking Committee.

Mr Greenspan added that a recent wave of accounting scandals that has swept through corporate America, triggering a slump in global share prices, is nearly over.

"With profitable opportunities for malfeasance markedly diminished, far fewer questionable practices are likely to be initiated in the immediate future," he said during his twice-yearly speech to the Senate Banking Committee.

Mr Greenspan's remarks come as gloomy investor sentiment on Wall Street is weighing heavily on equity markets worldwide.

Stockmarket jitters

US and European share prices were lower on Tuesday, extending sharp losses over the past two weeks.


An infectious greed appeared to grip much of our business community

Alan Greenspan

The rush to sell shares reflects concerns over the reliability of corporate financial statements following revelations that energy trader Enron and telephone company Worldcom may have deliberately exaggerated their earnings.

Mr Greenspan blamed the accounting scandals on the stock market boom of the late 1990s, which led to an "outsized increase in opportunities for avarice".

"An infectious greed seemed to grip much of our business community," he told the committee.

The Fed chairman recommended "very stiff penalties" for corporate bosses who mislead investors over their company's financial position.

"Fraud and deception are thefts of property," he said.

Soothing words

There are growing fears that the latest stock market slide, now in its second week, could derail the global economy's stop-start recovery from last year's downturn.

The slump in US stocks has weakened the dollar against other currencies, with the euro climbing to parity against the greenback for the first time in over two years on Monday.

Mr Greenspan provided some reassurance, saying that the US economy had "held up remarkably well" to the stock market slump, thanks in part to strong consumer spending.

He added that the economic recovery is likely to be gradual, hinting that the US Federal Reserve may keep interest rates on hold at their current 40-year low of 1.75% until there is firmer evidence of a turnaround.

The Fed on Tuesday revised its 2002 US growth forecast to 3.5 - 3.75%, up from its previous forecast of 2.5 - 3%.

Investor gloom

Shareholders hope that Mr Greenspan's speech will revive confidence in stock markets.

The main US stock market indexes edged slightly higher while Mr Greenspan was speaking, but remained firmly in negative territory.

Mr Greenspan's speeches have triggered sharp share price rallies in the past, but there are signs that investor gloom may be more difficult to dispel on this occasion

A speech from US President George Bush aimed partly at reassuring the markets had little effect on Monday.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Patrick O'Connell
"The wounds linger from the corporate scandals"
The BBC's Stephen Evans
"Greenspan is a man that everybody trusts"
Alan Greenspan , US Federal Reserve chairman
"An infectious greed seemed to grip much of our business community"

Analysis

IN DEPTH
The Markets: 9:29 UK
FTSE 100 5760.40 -151.7
Dow Jones 11380.99 -119.7
Nasdaq 2243.78 -28.9
FTSE delayed by 15 mins, Dow and Nasdaq by 20 mins
Launch marketwatch
View market data
See also:

16 Jul 02 | Business
15 Jul 02 | Business
15 Jul 02 | Business
12 Jun 02 | Business
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