* Evans sees rates at 1.25 percent at end of 2016
* Evans' rate view marks him as second-most dovish at Fed (Adds Evans prefers early 2016 rate rise)
By Michael Flaherty and Saikat Chatterjee
HONG KONG, March 28 (Reuters) - The U.S. Federal Reserve would do best to keep rates at rock bottom until early 2016 and then raise them only gradually so as not to risk derailing a building economic recovery, a top Fed official said on Friday.
"I personally doubt that the funds rate is going to start to increase before the middle of 2015," Chicago Federal Reserve Bank President Charles Evans told a Credit Suisse investment conference in Hong Kong.
According to Market News International, he told reporters afterwards: "It's more likely to be late, after the middle of 2015. I'd actually hold off until early 2016 for the funds rate increase."
Evans added he expects the federal funds rate to be at 1.25 percent at the end of 2016.
That view marks Evans, who does not vote this year on Fed policy, as the Fed's second-most dovish policymaker, with only one of his colleagues seeing rates rising more slowly, according to projections published last week by the Fed.
Raising rates more aggressively, whether to head off the risk of financial instability or unacceptably high inflation, could dangerously depress already low inflation and derail a recovery that is finally gaining steam, Evans said.
"If we go out and pound that message repeatedly, then it gets every economy a chance to get their own house in order and deal with their own financial situation and we will all grow together," he said.
Last week, Fed Chair Janet Yellen roiled financial markets by saying that after the Fed wraps up its bond-buying stimulus, likely before the end of the year, rate rises could come around six months later.
Evans acknowledged the possibility, though he downplayed it.
"In terms of timing, it certainly could be six months. I think it will be at least six months," he told reporters, according to MNI.
U.S. inflation has been stuck at around 1 percent since early 2013, and Evans said that indicated the need to keep policy accommodative.
"When we get up to 2 percent inflation, we will revert to more normal monetary policy," Evans said.
Most Fed officials see inflation rising to between 1.5 percent and 2 percent by the fourth quarter of next year, and most expect the Fed's first rate hike to come by then.
Evans' outlook for rates differs starkly from St. Louis Fed President James Bullard, who spoke at the conference earlier this week.
Bullard told Reuters he expected the Fed to start increasing rates in the first quarter of next year, and lift them to 4 percent to 4.25 percent by the end of 2016.
Most other Fed policymakers see rates rising no higher than 3 percent by the end of 2016. The U.S. central bank publishes the views of its policymakers on the appropriate rate path, but does not identify who is making each individual projection.
Markets have proved sensitive to those projections, with traders moving forward their expectations for a first Fed rate hike after last week's release showed some officials believed monetary policy should be tightened slightly more aggressively than they had felt in December.
Traders of short-term U.S. rate futures are currently are making nearly even odds of a first Fed rate hike in April 2015, with better-than-even chance of a rate hike in June 2015. (Additional reporting by Ann Saphir; Editing by Ken Wills, John Mair and Sophie Hares)