Interest rates shot up on Tuesday after comments to Congress by Federal Reserve Board Chairman Alan Greenspan ignited inflation fears and raised the possibility of a credit tightening.

Bond prices fell, causing the yield on the 30-year Treasury to rise 2 basis points to 6.55%. Prices of shorter-term issues fell more sharply.

The yield on the 10-year Treasury note rose 5 basis points to 5.73%; the five-year note rose 8 basis points to 5.06%, and the two-year note rose 10 basis points to 4.07%.

On a bond-equivalent basis, three-month bills moved up 5 basis points to 3.13%.

|Into the Lion's Den'

In the first leg of his semiannual Humphrey-Hawkins testimony, Mr. Greenspan warned the House Banking Committee about inflation and indicated that the Fed's next move will be a tightening of credit.

"The tone of Alan Greenspan's message was more hawkish about inflation than the market had anticipated," said Charles Lieberman, money market economist for Chemical Securities Inc.

"Greenspan also walked into the lion's den and said he was thinking of a tighter monetary policy," he added.

|At Best Stable'

Mr. Greenspan said the Fed expects consumer prices to rise 3% to 3.25% this year and 3% to 3.5% next year. The Fed had earlier predicted a 2.5% to 2.75% rise.

Mr. Greenspan characterized the inflation news as "disappointing" and "at best stable."

He noted that accommodative monetary policy since 1989 has caused short-term rates to be very low relative to inflation. This has caused the Fed to be on the alert for signs of inflation, he said.

"Failure to act in a timely manner could lead to a buildup of inflationary pressures, to adverse reactions in the financial markets, and ultimately to the disruption of the growth process," he said.

He said a rise in inflationary expectations is reflected in the price of gold, which has risen sharply in recent weeks. "What gold prices reflect is a concern about, purchasing power," Mr. Greenspan said.

Stocks initially fell on Mr. Greenspan's speech, but rebounded on strength in auto and technology issues. The Dow Jones industrial average rose 9.50 points to 3,544.78.

The dollar moved lower, finishing in New York at 108.15 Japanese yen and 1.6990 German marks, versus 108.48 yen and 1.7070 marks on Monday.

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