Federal Reserve Board Chairman Alan Greenspan's glommy comments on the U.S. economy caused a wave of short-covering yesteday afternoon, and Treasury prices closed at the day's highs.

Late in the afternoon, the 30-year bond was p 1/4 point to yield 8.02%.

Mr. Greenspan told an economic conference at the University of Rhode Island in Providence that the economy had become "demonstratbly sluggish" in recent weeks.

The chairman said the economy was growing, but at a slower pace than is usual during a recovery and said the "utterly unprecendented" credit crunch was part of the problem.

Traders and analysts interpreted the remarks as a warm-up to a Fed easing. The market quickly retraced losses incurred overnight, then moved higher.

"It sounds as if [Greenspan] is trying to prepare people for the fact they may ease," said Chris Rupkey, an aconomist as Mitsubishi Bank.

"I think he would like to ease if the data would cooperate," Mr. Rupkey said, adding it might be "awkward" for the Fed to lower its funds target if today's third-quarter gross national product report shows strength.

In overseas trading, prices had fallen as the market responded to Treasury Secretary Nicholas Brady's forecast of a healthy boost in third-quarter output.

On the television show "Face the Nation" on Sunday, Mr. Brady said the third-quarter gross national product report will show a gain of between 2.5% and 3.0%, and could even come in higher.

Such a report would signal the end of the recession. Mr. Brady said, although he acknowledged "the economy is not coming back as strongly as it should."

During the London morning trading session. Treasury prices eroded as Mr. Brady's comments filtered through to the bond market.

A London dealer said traders were skeptical of the Treasury secretary's attempt to talk up the U.S. economy, but were "using it as a reason to move the market back, ahead of the pending supply."

In fact, Mr. Brady's estimate was little different than the consensus forecast of a 2.5% increase in third-quarter output.

Such an increase would mark an improvement after the previous three quarters of declines in output. The gross national product fell 1.6% in the fourth quarter of last year, declined 2.8% in the first quarter of this year, and moved 0.5% lower in the second quarter.

But analysts say the increase means little if it only shows businesses have stopped liquidating inventories.

"If final demand still weakens, it could mean we're just getting ready for another cycle of inventory liquidation," said Steven Ricchiuto, an economist at Barclay de Zoete Wedd Government Securities.

Traders said prices also got a boost yesterday afternoon from the Treasury's fourth-quarter borrowing estimate and from President George Bush's comments on tax cuts.

The Treasury said it will only need to borrow $75.8 billion during the current quarter, down from the $85 billion to $90 billion range it estimated in August. And President Bush reaffirmed his opposition to any "budget-busting" tax cuts.

But activity was generally quiet yesterday, and a government bond trader said retail and speculative accounts were staying out of the market.

"Everybody is focusing on the refunding announcement" tomorrow, he said. "Between that and all the economic numbers coming out this week, people are playing it very close to the chest."

Tomorrow the Treasury will announce the sizes of next week's refunding auctions of three-year and 10-year notes and 30-year bonds. The market expects the refunding package to total $38.5 billion.

Yesterday's only economic report, the September federal budget statement, was postponed again. The Treasury said the number may be released today or tomorrow.

The December bond future contract closed 9/32 higher at 98 13/32.

In the cash market, the 30-year 8 1/8% bond was 1/4 point higher, at 101 1/32-101 5/32, to yield 8.02%.

The 7 7/8% 10-year note rose 1/4, to 101 17/32-101 21/32, to yield 7.62%.

The three-year 6 7/8% note was up 3/32, at 101 23/32-101 25/32, to yield 6.16%.

In when-issued trading, the 6% two-year note was 3/32 higher at 100 6/32-100 7/32 to yield 5.88% and the five-year 6 7/8% note was up 3/32 at 99 25/32-99 27/32 to yield 6.91%.

Rates on Treasury bills were little changed, with the three-month bill steady at 4.96%, the six-month bill unchanged at 5.03%, and the year bill two basis point lower at 5.02%.

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