March 1 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said a recession in the U.S. is possible, though not probable this year as excess inventory is being reduced quickly, according to people attending a CLSA Japan Forum in Tokyo today.

``By the end of the year, there is the possibility, but not the probability of the U.S. moving into recession,'' Greenspan said, according to notes taken by Bernard Key, a former economics professor at Tama University in Tokyo, who attended the event.

Greenspan's comments may be an attempt to clarify remarks he made on Feb. 26 that some traders say contributed to a global plunge in stocks the following day. He told an audience in Hong Kong three days ago that he couldn't rule out a recession this year in part because slowing growth in profit margins suggests the expansion might be winding down, the Associated Press reported.

His earlier statement was ``probably misinterpreted, that's why we see a clarification today,'' said Glenn Maguire, chief Asia economist for Societe Generale SA in Hong Kong. ``To hint at the possibility of a recession won't make Bernanke's life any easier,'' he added, referring to Greenspan's successor.

Greenspan spoke in a satellite video link and Key's notes were confirmed by four people who attended the conference and declined to be identified. CLSA wouldn't comment on Greenspan's presentation.

Bernanke's Outlook

Fed Chairman Ben S. Bernanke told Congress yesterday that the central bank still expects the economy to pick up later this year. Greenspan acknowledged earlier in the week that most economists don't foresee a recession.

Current low yield premiums aren't sustainable, profit margins are peaking and the U.S. growth cycle is in a mature phase, Greenspan said today.

The former Fed chairman said previous experience suggests a flattening of profit margins should produce a recession. The globalization of the economy may mean that pattern may not be repeated this time, according to a fund manager who attended the presentation.

Greenspan's remarks earlier this week emerged at a time of weakness in some areas of the U.S. economy, including the housing and auto industries, in an expansion that started in 2001.

On Feb. 27, U.S. stocks had their biggest tumble since 2002 after a plunge in Chinese shares sparked a global sell off.

Chinese Stocks Decline

The Shanghai and Shenzhen 300 Index, which tracks yuan- denominated A shares listed on China's two exchanges, declined 71.03, or 2.8 percent, to 2473.54. The measure added 3.5 percent yesterday, after plunging 9.2 percent two days ago. It has climbed 20 percent this year.

Greenspan today said the relative mildness of this week's equity-market declines is evidence that financial systems have become better at accommodating shocks, according to one fund manager who attended the talk. The Dow Joes Industrial Average yesterday climbed 0.4 percent after a drop of 3.3 percent the previous day.

Asked about investment opportunities, Greenspan said that at some stage there will be a recovery to a more ``normal'' risk spread, according to a trader at today's event.

The trader said he'd heard Greenspan speak three times in the past 12 months and this was his most cautious. The same trader said the former Fed chief used the words ``mature phase'' three times today to describe the U.S. economy and that the repetition of the phrasing was conspicuous.

Disinflation Trend

Greenspan said the global economy is in a long-term trend of disinflation and low interest rates, mainly because of the emergence of some economies from central planning, such as Eastern Europe and China, according to Key's notes.

Because the global economy now includes countries and regions that have highly skilled but less expensive labor, the cost of goods has declined. That's allowed real and nominal interest rates to decline, he said.

Greenspan said in two or three years, this disinflation process will probably come to an end and the world economy will return to a more normal era of price-pressure increases. The asset category most affected by that will be low-quality debt, the former Fed chairman said.

Yesterday, Bernanke said in congressional testimony that ``there's a reasonable possibility that we'll see some strengthening of the economy sometime during the middle of the year.'' The central bank's outlook was unshaken by a U.S. government report that showed the fourth-quarter expansion was slower than previously estimated, Bernanke added.

Housing

Bernanke and his colleagues have been mostly upbeat about economic prospects this year, while noting risks from industries such as housing.

The Fed has said over the past month that the housing market may be bottoming. San Francisco Fed President Janet Yellen said repeatedly in January that the job market was going ``gangbusters.''

Most forecasters consider that a recession is possible, though chances are ``pretty low,'' Wachovia Corp. chief economist John Silvia, who helps run a quarterly survey of business economists, said in an interview on Feb. 27.

Since retiring in January 2006, Greenspan, 80, has been working on a book, ``The Age of Turbulence,'' and speaking to companies and business groups. The New York Times reported last March that Penguin Press, part of Pearson Plc, paid Greenspan at least $8.5 million for the rights to the book, which is scheduled for a Sept. 17 release.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Kiyori Ueno in Tokyo at kueno2@bloomberg.net

Last Updated: March 1, 2007 08:25 EST