The Federal Reserve's policy of keeping interest rates near zero is fueling a wave of speculative capital that may cause the next global crisis, Hong Kong's chief executive said.

"I'm scared and leaders should look out," said Donald Tsang, chief executive of the city, said in Singapore Friday. "America is doing exactly what Japan did last time," he said, adding that Japan's zero interest rate policy contributed to the 1997 Asian financial crisis and the US mortgage meltdown.

Fed Chairman Ben Bernanke, a scholar of the Great Depression, has overseen a record injection of liquidity into the world's largest economy, pledging not to make the mistake of the 1930s, when officials tightened policy. Tsang's warning contrasts with pledges by the Group of 20 nations that represent the world's biggest economies to keep stimulus measures in place.

"We have a US dollar carry trade at the moment," Tsang, 65, said in a speech where leaders of the Asia Pacific Economic Cooperation forum are gathering for a weekend meeting. "Carry trade" describes the situation in which investors borrow cheaply in one currency and use the funds to invest in other currencies.

"Where the money is going - it's where the problem's going to be: Asia," Tsang said. "You can see asset prices going up, not only in Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals."

Tsang also said the city was considering introducing short-position reporting rules.

Tsang was Hong Kong's financial secretary during the 1997-98 Asian crisis, when countries from South Korea to Indonesia were forced to borrow from the International Monetary Fund because of an investor exodus sparked by concerns that the value of their currencies could not be maintained. Together with Hong Kong Monetary Authority chief Joseph Yam, he intervened to buy $15 billion of Hong Kong stock, successfully defending the city's exchange-rate peg to the dollar.

Hong Kong's interest rates track those of the US because of the currency's peg to the dollar. Real estate prices in the city have risen more than 25 percent this year, prompting the International Monetary Fund to warn this month of a possible bubble. Hong Kong Financial Secretary John Tsang said November 4 the government was "very concerned" about the rise.

Tsang's warning may strike a chord elsewhere in Asia, where inflows of capital threaten to create bubbles.

World Bank President Robert Zoellick, also in Singapore for APEC, said that while Asian economies do face some risk of asset prices climbing, it's up to the their officials to act.

"Given liquidity in the international marketplace and given the pace of recovery in East Asia, you could start to see some asset bubbles," Zoellick said in a Bloomberg Television interview Thursday. "There will be a need here, unlike what you might have in Europe and North America", he said, citing actions such as Australia's rate boost this month, as an example.

Asian central banks this year have increased holdings of US dollar assets, including treasury bills, to keep their currencies from rising, which would make their exports more expensive relative to China's. While China's holdings of US Treasuries rose 10 percent this year, Japan's increased 16 percent and those in the rest of Asia by 25 percent, Bloomberg data show.

The U.S. currency has tumbled 14 percent since the beginning of March, according to the Fed's trade-weighted major currency index. The dollar has been hurt by a global recovery that has reduced investor appetite for the currency as a haven, and by expectations for the Fed to keep its main rate near a record low into 2010.

"There are indications that the US dollar is now serving as the funding currency for carry trades," the IMF said in a report last week. "These trades may be contributing to upward pressure on the euro and some emerging-economy currencies," the report added.

Fed policy makers last week reiterated their pledge to keep borrowing costs "exceptionally low" for an "extended period" to aid the US recovery. APEC finance ministers, in a joint statement yesterday, committed to maintain stimulus efforts "until a durable recovery in private demand is secured."