Chinese stocks fell moderately in hectic trade on Thursday after former U.S. Federal Reserve Chairman Alan Greenspan warned that the market was heading for a "dramatic contraction".

The Shanghai Composite Index rose as much as 0.84% to an all-time, intra-day high in the opening minutes of trade - but had slipped 1.51% to 4,110.612 points at mid-morning.

Turnover in Shanghai A shares was a massive 102.7 billion yuan ($13.4 billion).

Greenspan told a teleconference in Madrid on Wednesday that China's equities bull run, which has more than tripled the index since the start of last year, could not last. The warning hurt stock markets in New York and Asia.

Analysts in Shanghai said Greenspan's comments helped to spur selling in the Chinese market on Thursday because some local investors were increasingly worried about a bubble.

"There's a lot of concern overseas about the Chinese market, and that concern is starting to be shared here," said Zheng Weigang, analyst at Shanghai Securities.

However, he and several other analysts said they still did not expect a big decline in Chinese stocks, partly because the government was committed to a strong market as part of economic reforms.

News that China had agreed to lift the ceiling for foreign investment in its stock market to $30 billion, from $10 billion, helped sentiment, although actual fresh fund flows into stocks will depend on the granting of individual licenses to funds.

"This really helps the stock market because it will mean bigger fund inflows over the long term," Zheng said.

While licensed foreign institutional investors now hold only a tiny fraction of the Chinese stock market's capitalization, under 1%, the government's decision to raise the ceiling showed a benign stance toward the market, analysts said.

Many recalled that Greenspan's warning about "irrational exuberance" in the U.S. stock market in 1996 did not prevent that market from rallying for the rest of the decade.

They questioned whether Greenspan understood the dynamics of the Chinese market, where limited supply of freely floated shares relative to demand, and other special factors such as steady appreciation of the yuan, are helping boost prices.

Although some local analysts concede the Chinese market has formed a bubble, they insist it is a "rational bubble" in which strong fund flows from millions of households just starting to invest in stocks may keep equities strong for a while longer.

"The Chinese market is something that Greenspan does not know very well," said analyst Zhou Fengwu at Orient Securities.

"Many Chinese industries have huge potential to expand in coming years, and long-term prospects for the market are still very bullish."