BlackRock sees fed funds at 3.5 pct or less

NEW YORK (Reuters) - The Federal Reserve will keep cutting interest rates to help stabilize credit markets, regardless of whether the U.S. economy enters recession, a top asset manager at investment firm BlackRock Inc. said on Monday.

Bob Doll, global chief investment officer for equities at New York-based BlackRock, said at the Reuters Investment Outlook Summit that a combination of Fed action and fiscal "band-aids" should help pull credit markets out of their recent crisis.

Still, chances of a recession are now about one in three, up from one in four coming into this year, given the credit problems and the mature U.S. expansion, he said.

Recession "is not our mainline scenario, but it is a possibility and we have to talk about it," Doll said.

The extent to which tighter credit standards swamp the overall economy, especially the two-thirds to 75 percent represented by consumer spending, remains an unknown, he said.

"The center of the pebble in the pond was subprime leveraged mortgages, but the ripple effect has touched almost everything now," Doll said.

The Federal Open Market Committee is likely to lower its benchmark lending rate by 25 basis points, to 4.25 percent, when it meets on Tuesday for the final time in 2007.

Over the coming months, "it is hard to not see (the) federal funds (rate) getting down to 3.5 percent, and if we have a recession they (the Fed) will go lower," Doll said.

The Bush administration on Friday outlined a plan aimed at slowing the wave of homeowner foreclosures from the subprime mortgage crisis and, by doing so, shoring up the economy.

Doll said more government actions were likely in the months ahead to deal with a housing and mortgage crisis likely to linger for several years.

"The Fed is a necessary but not sufficient condition to getting us back to what we need. ... When you have a big wound, and you have a box of Band-Aids, one Band-Aid will not necessarily cover the whole wound. You need a number."

(For summit blog: summitnotebook.reuters.com/)

(Reporting by Ros Krasny; Editing by Jonathan Oatis)