WASHINGTON - Alan Greenspan, explaining one of the few economic stumbles during his long tenure at the Federal Reserve, said Friday that if the Fed had tried to burst the speculative stock market bubble of the late 1990s, it could have dumped the economy into a severe recession.

        The man who once famously wondered whether investors were in the grip of “irrational exuberance” defended his handling of Wall Street's long bull market during an address to a Fed-sponsored economic conference.

        “The notion that a well-timed incremental tightening could have been calibrated to prevent the late 1990s bubble is almost surely an illusion,” Mr. Greenspan told participants at the economic symposium in Jackson Hole, Wyo.

        Some critics have argued that the central bank made a major policy error by failing to curb stock prices as they soared into the stratosphere, setting the stage for a spectacular market crash beginning in the spring of 2000 that has seen more than $7 trillion in investor wealth wiped out.

        For the Fed to have significantly influenced the level of stock prices during the market boom would have required such a big boost in interest rates that it would have run the risk of pushing the economy into a recession, Mr. Greenspan argued.

        To support this view, he noted that during the long bull market that began in the early 1980s, the Fed did raise interest rates by more than 3 percentage points on two separate occasions and this only had a brief depressing effect on stock prices.

        “Such data suggest that nothing short of a sharp increase in short-term rates that engenders a significant economic retrenchment is sufficient to check a nascent bubble,” Mr. Greenspan said.

        Mr. Greenspan, who has been Fed chairman since August 1987, was the opening speaker at the two-day conference that featured academic economists presenting papers on what Fed monetary policy, and congressional tax and spending decisions, can do to deal with economic recessions.

        Some analysts saw Mr. Greenspan's defense of Fed actions as a response to some rare criticism of his job performance since the decade-long record expansion ended in March 2001 and Wall Street's troubles deepened with a wave of accounting scandals.

        “I think Greenspan is trying to protect his legacy here,” said David Jones, chief economist at Aubrey G. Lanston & Co.

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