Greenspan also told the Senate Banking Committee that while inflation is not an immediate threat, it remains something policymakers must guard against.

His remarks seemed to support the views of many economists that the Fed will likely stick with its policy of raising interest rates at a gradual pace. The dollar firmed against other currencies, gold declined and Treasuries weakened, but stocks stalled as investors tried to discern how far the rate tightening would go.

"The problem for stocks is there's no end in sight," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Greenspan still thinks rates are too low, and he has no intention to stop raising rates. And history has shown the Fed doesn't just stop raising rates on its own. Something happens. We don't know what it will be, but I know that's the thing that keeps me up at night."

According to preliminary results, the Dow Jones industrial average shed 2.44, or 0.02 percent, to 10,834.88.

The broader gauges were narrowly mixed. The Standard & Poor's 500 rose 0.22, or 0.02 percent, to 1,210.34. The Nasdaq composite index was down 1.78, or 0.09 percent, at 2,087.43.

Greenspan said Fed officials have been "confounded" by the bond market's reaction to its monetary policy. Bonds have rallied as the Fed raised short-term rates, sending the yield on the 10-year Treasury note below 4 percent last week.

The 10-year note fell today, pushing its yield to 4.16 percent. But that is still 42 basis points lower than it was on June 30, when the Fed announced the first rate hike in the current cycle. Today's comments underscored the Fed's belief that long-term rates should rise eventually, but in the absence of inflation, there may be little to drive them higher.

"Mr. Greenspan is saying, 'We're puzzled over this,"' said Peter Cardillo, chief strategist with S.W. Bach & Co. "But that's the hint, right there: The fact that he's talking about long-term interest rates is the hint that they might start acting more aggressively. And there are inflationary pressures out there, there's no question. The weaker dollar has caused inflationary pressure, and if that continues, obviously, those would continue to build."

While Greenspan's remarks pressured the rate-sensitive financial sector, housing stocks soared, with the Dow Jones Home Construction Index climbing 1.74 percent. After several years of low mortgage rates, the real estate industry is threatening to become the next bubble, underscoring Greenspan's desire for higher long-term rates. Further highlighting the issue, the government's latest report on housing construction showed a 4.7 percent rise in January, the highest level of activity in 21 years. The increase surprised economists, who had forecast a 3.7 percent decline.

In other economic news, the Fed reported output at the nation's factories, mines and utilities was unchanged in January, a disappointment to analysts who had been expected a healthy 0.3 percent increase.

Oil prices were volatile, rising $1.07 to settle at $48.33 as traders sifted through the government's weekly report on fuel inventories. The Department of Energy reported that crude stores grew by 2.1 million barrels last week as imports rose, a bigger build than analysts had expected. Gasoline inventories rose by 4.9 million barrels; analysts had expected a build of about 300,000 barrels. Distillate fuels, which include heating oil, posted a higher-than-expected draw, but that had little impact on oil trading as winter gives way to spring.

The Coca-Cola Co. rose 1.5 percent, or 65 cents, to $43.30, after the world's largest beverage maker reported a 30 percent rise in fourth-quarter earnings, and announced plans to increase marketing of Diet Coke to cater to a more diet-conscious public. The results, announced before the market opened today, beat Wall Street expectations.

Circuit City Stores Inc. shed 34 cents to $16.19 as the nation's No. 2 consumer electronics chain announced plans to close 19 superstores, five regional offices and a distribution center by month's end. The retailer also sold one of the buildings in its Richmond, Va., corporate campus.

Online travel and retailer IAC/InterActiveCorp declined 6 percent, or $1.45, to $22.55, after the company swung to a net loss of $46 million on charges related to two of its businesses. Excluding those costs, earnings for the operator of Expedia.com, Home Shopping Network, Hotels.com and Match.com beat Wall Street's expectations.

Applied Materials Inc., the world's largest maker of semiconductor manufacturing equipment, was up 1 cent at $17.50 after quarterly profits more than tripled compared to last year's results, which were weighed down by restructuring charges.

Advancing issues outnumbered decliners by about 5 to 4 on the New York Stock Exchange.

The Russell 2000 index, which tracks smaller company stocks, was up 3.91, or 0.62 percent, at 638.85.