Federal Reserve Chairman Alan Greenspan did little Thursday, in his semiannual economic report to Congress, to dispel the prospect of further interest rate hikes .

In reaction, most stocks fell as bond yields rose. Major banks made gains, but regional banks and other financial services companies, notably in the mortgage-related sector, were hurt.

Mr. Greenspan did not suggest that higher rates are inevitable, but his tone in assessing future economic trends was tougher than many observers had expected in the wake of several benign inflation reports.

He seemed concerned, even doubtful, that productivity gains can continue to offset a tight labor market and strong consumer demand, thus averting an overheated economy and a resurgence of inflation.

"If new data suggest it is likely that the pace of cost and price increases will be picking up, the Federal Reserve will have to act promptly and forcefully," he told the House Banking Committee.

Hinging matters on "new data" leaves the Fed ample room to maneuver before its Aug. 24 policy meeting. "An August rate hike is still more likely than not, but it is not a done deal," said Ian Shepherdson of High Frequency Economics in Valhalla, N.Y.

Others doubt a rate hike is ahead. Second-quarter economic growth may be reported next week at a 3% annual rate, down sharply from the first quarter, said Merrill Lynch & Co. chief economist Bruce Steinberg. That would match the Fed's own view of the economy's noninflationary growth potential, he said, making it "hard to justify a near-term tightening."

But fresh uncertainty injected Thursday by Mr. Greenspan surprised many investors. Stocks had generally rallied since the Fed on June 30 raised short-term rates by the smallest possible increment, one-quarter of a percentage point, and officially took a neutral stance on future rate hikes.

The Fed chairman seemed to be trying Thursday to counter any misperception in the market. Though he said he saw no pickup of inflation in the near future, he cautioned that the Fed is intent on preempting inflation before it appears on radar screens.

And he suggested that warning signs have already been seen. "There can be little doubt that, if the pool of job seekers shrinks sufficiently, upward pressures on wage costs are inevitable, short of a repeal of the law of supply and demand. Such costs have invariably presaged rising inflation in the past."

As for future productivity strides as a counterweight, he was wary. "Despite the remarkable progress witnessed to date, history counsels us to be quite modest about our ability to project the future path and pace of technology and its implications for productivity and economic growth," he said.

And though quickened productivity has supported higher stock prices on the expectation of earnings growth, investors should remain cautious. "The danger in these circumstances is that an unwarranted, perhaps euphoric, extension of recent developments can drive equity prices to levels that are unsupportable," he said.

Not everyone shares the Fed's productivity concern. A. Gary Shilling, an economist and money manager, said poor productivity growth in the 1970s through the early 1990s was a historical aberration.

Because the reasons for growth rates below 1.5% annually - ranging from inflation to corporate restructuring - are now abating, "there is no reason why productivity growth should not return to long-term trend rates" above 2%, said Mr. Shilling, who heads his own firm in Springfield, N.J.

In part, he said that is because high-productivity "new tech" industries such as semiconductors, computers, telecommunications, and biotechnology "are becoming big enough to dominate the economy."

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