US central bank chief Alan Greenspan has praised the UK financial system and its guardian, Chancellor Gordon Brown, on a two-day visit to the UK during which he is scheduled to pick up an honorary knighthood.

The Federal Reserve chairman is to be awarded the title of Knight of the British Empire at a ceremony on Thursday in Balmoral castle, one of the Queen's residences.

However, Mr Greenspan, a US citizen, will not be entitled to call himself "Sir Alan".

Mr Greenspan told an invited audience as he dedicated a new wing of the Treasury that London - along with New York -still remained at the "top of the financial pyramid".

He also praised Chancellor Gordon Brown and Bank of England governor Sir Edward George as representing "the professional best in world finance" and as the "most worthy custodians" of Britain's financial legacy.

The chancellor, in turn, was lavish in his praise of Mr Greenspan, who has had a sometimes uneasy relationship with his own Secretary of the Treasury, Paul O'Neill.

He said his presence here "fills us with exuberance... rational exuberance" - a reference to Mr Greenspan's remarks in 1996 that the stock market was suffering from "irrational exuberance".

Fears of a crisis

But with markets down to 1996 levels, there is much to worry about in practical terms about the stability of the world financial system - and close collaboration between the US and the UK could hold the key to managing any future crisis that might emerge.

In an earlier speech, Mr Brown warned that vigilance was needed as world was still facing a serious situation

And he warned that it was urgent that the world adopted standards to regulate the actions of private lenders to developing countries.

Mr Brown, who heads the IMF's top finance committee, which meets on Saturday, told Commonwealth finance ministers that it was unacceptable for vulture funds to profit from buying the debt of poor countries and suing the debtor to recover the full amount.

"We need to resolve the obstacles that stand in the way of effective debt rescheduling - including continuing to work on an international bankruptcy procedure and agreeing new standards for international best practise in sovereign debt contracts, with a strategy for encouraging their adoption worldwide," he said.

The IMF is currently locked in a debate with the private banking sector - supported by the US government - over who should pay the costs of "bail-outs" if countries become insolvent and need to restructure their debts.

Tricky timing

The knighthood is designed to reward Mr Greenspan for his "outstanding contribution to global economic stability".

The ceremony coincides with a renewed slump on world stock markets amid growing fears that the US economy, the world's biggest, could be on the brink of its second recession in as many years.

On Tuesday, the benchmark index of US shares, the Dow Jones, closed at its lowest level for almost four years, partly because of concerns about a possible war in Iraq.

The Dow's decline came as the Federal Reserve warned that there was "considerable uncertainty" over the timing and strength of the economic rebound in the US, citing "heightened geopolitical risk".

Even so, the Fed ignored growing pressure for a cut in interest rates, leaving them on hold at their current 40-year low of 1.75%.