The central bank chief has also renewed his criticism of government plans to invest public money in the share market to fund retirement payments to Americans.

Meanwhile, anxious investors and market traders monitored his testimony for hints on the central bank's thinking on the future of US interest rates - he gave none, leaving Wall Street searching for direction and unmoved by his speech.

Alan Greenspan: Warns investors of "real trouble"

In testimony before the House of Representative's Finance Subcommittee, Mr Greenspan warned elderly investors that Internet stocks were risky and at their stage of life less risky assets were more appropriate.

"If you have everything in equities, if you have everything in Internet stocks, you're in real trouble," he said.

High-technology shares in the US, especially those involved in Internet-related activities, have soared in recent months as investors gamble that the explosive growth in telecommunications and new-media sectors will deliver windfall profits.

Savings misgivings

On the social security debate, he said President Clinton's social security investment plans may distort the true value of US share prices and may not lead to higher national savings overall.

The President's social security strategy, announced in January, is to use projected Budget surpluses in coming years to lower national debt and make greater contributions to the country's social security trust fund which is the source of Americans' retirement payments.

This fund is currently invested in US Treasury bonds, the buying of which raises funds for the government to pay off national debt.

The President is proposing that as national debt will be lower, fewer bonds will need to be sold to fund it. Instead of being invested in bonds, an extra $700bn could be redirected to the sharemarket via a government-run mutual stock fund.

He believes higher returns on shares over the longer term will allow higher payments to pensioners and a better standard of living in retirement.

Zero-sum game

However, Mr Greenspan believes this is a flawed plan: "Investing social security in equities ... is largely a zero-sum game. To a first approximation, aggregate retirement resources, from both social security and private funds, do not change," he said.

He added that if large amounts were redirected from bonds to shares in the US financial markets, average returns on shares would likely fall.

"Any increase in returns realized by social security must be offset by a reduction in returns earned on private portfolios, which represent, to a large extent, funds held for retirement," he said.

He underlined his belief that any overhaul of the social security system should have lifting the national savings rate as its ultimate goal.