UPDATE 1-Dealers saw first Fed rate hike in Q3 2015 -survey

* Chance of recession within six months seen at 25 percent

* Median forecast sees target rates at 1 pct at end 2015

By Atossa Araxia Abrahamian

Oct 5 (Reuters) - U.S. primary dealers on average expected the Federal Reserve to hold off until the third quarter of 2015 before beginning to raise interest rates, according to a survey that was conducted before the Fed's meeting last month and released on Friday.

The 21 large financial institutions that do business directly with the Fed had previously predicted rate hikes to begin in the first quarter of 2015, according to the surveys conducted before each Fed policy meeting by the Federal Reserve Bank of New York.

The Fed announced last month that it intended to keep interest rates on hold at their current ultra-low levels until at least mid-2015. The Fed said it would not hike rates immediately after an economic recovery begins.

The Fed at the close of its September policy meeting also announced a third round of bond buying that it said it will continue until the labor market improves "substantially."

The Fed has kept borrowing costs near zero since late 2008 after the financial crisis deepened.

The dealers in the September survey forecast that the federal fund's target rates would stand at 1 percent at the end of 2015, according to the median forecast.

Dealers surveyed last month put the chance of the U.S. economy falling into a recession within six months at 25 percent, according to the median forecast.

The primary dealers were surveyed between Aug. 31 and Sept. 4 for the study.

The survey results are made public a day after the minutes of the meeting of the policy-setting Federal Open Market Committee are released, part of the Fed's campaign for greater transparency.