Federal Reserve Board Chairman Alan Greenspan yesterday hinted that U.S. interest rates would remain steady for the near future, although he described the economic and financial environment of the industrial world as "uncertain" and "fragile."

In a speech to the Bretton Woods Committee -- a private organization providing political support for the World Bank and the International Monetary Fund -- Greenspan also warned that while exchange rate stability is "a desirable objective, {it} cannot be decreed."

Answering a question from former senator Charles Percy, Greenspan sharply criticized "gross distortions of reality" on trade issues by politicians who campaigned in Iowa. In a little-disguised barb at the proposal by Rep. Richard Gephardt (D-Mo.) to punish U.S. trading partners enjoying large surpluses, Greenspan said "free trade is better than nonfree trade."

Greenspan's reference to interest rates came in response to another question. Asked about the outlook, he said the financial factors influencing rates appear to be in relative balance, "better than I would have expected six months ago.

"For the moment, we seem to be in equilibrium and I expect we will stay there," he said. Greenspan's comments on exchange rates appeared to be directed to minimizing expectations that talks by key finance ministers, by themselves, could assure stability.

He said there is a large block of dollar-denominated securities in the Eurodollar market that can easily shift into nondollar securities, resulting in significant swings in exchange rates.

"What that basically means is that fundamentals become very critical for achieving exchange rate stability, he said. "The evidence is that it is not so much the supply of dollars, but the demand that is moving the bilateral exchange rates. Therefore, I think that any pulling back from the fundamentals is a mistake, and that any presumption that exchange rate stability can be achieved without those fundamentals is wrong-headed."

Greenspan also said that "the prospects for more buoyant economic activity in the industrial world are not great. The lingering impact of the stock market plunge and the ongoing correction of global external imbalances are factors that add to both the fragility and uncertainty of the growth prospects in industrial countries."

As the U.S. shifts some of its resources to the export sector -- slowing the growth of domestic demand -- and major trading partners find their exports reduced because of the impact of higher exchange rates, the net result will be "only moderate economic growth" for all the countries involved in the near term, Greenspan said.

He warned that "we must be vigilant" against a recurrence of inflation, and cautioned that further progress in reducing the trade deficit -- especially in nominal terms -- "is likely to be more gradual and irregular."