U.S. CEO survey: 40 pct see recession until 2010

WASHINGTON (Reuters) - The U.S. economy is in bad shape with no sign of immediate improvement, according to a Business Council survey of chief executives who were lukewarm about Democrats' stimulus spending plan.

The survey of 71 CEOs released on Thursday found that none expected an economic recovery to begin early this year. Almost 40 percent said they expected the recession to stretch into 2010.

Those surveyed are CEOs at some of the largest U.S. companies.

To survive the downturn, executives indicated they were relying primarily on a variety of cost cuts -- reducing discretionary spending (81.7 percent), a targeted hiring freeze (71.8 percent), cost-cutting innovation (60.6 percent) and lay-offs (57.7 percent).

Far fewer were revising existing strategies (11.3 percent), speeding new products to markets (16.9 percent) or otherwise shifting gears to function in a fundamentally changed economy.

In terms of the U.S. government's efforts to turn the economy around, the CEOs seemed pleased with the Federal Reserve, with nearly two-thirds saying it has had at least some impact. Over 90 percent expect the federal funds rate to be below 1 percent in July 2009, according to the survey.

The Fed has currently set a target range for the overnight bank lending rate at a historic low of zero to 0.25 percent.

The chief executives were less enthusiastic about most spending proposals to promote economic growth, with the exception of infrastructure funding, which 66.6 percent said would be effective.

They were more supportive about middle class tax cuts (71.2 percent) and payroll tax relief for employers (67.2 percent).

(Reporting by Diane Bartz; Editing by Neil Stempleman)