UBS sees US recession, fed funds cut to 2.25 pct

NEW YORK, Jan 22 (Reuters) - UBS now sees the United States in a recession in the first half of 2008, as the persistent housing slump and financial market woes have spread into the broader economy, the investment bank said on Tuesday.

UBS also revised its forecast on how far the Federal Reserve would slash the key federal funds target rate to 2.25 percent later this year in a bid to revive growth.

U.S. gross domestic product is expected to contract 1.0 percent in the first quarter and 1.5 percent in the second quarter before growth in the second half of the year, UBS said in a research note on Tuesday.

Meanwhile, UBS said the Fed would lower the fed funds target to 2.25 percent before the end of the third quarter, compared with its earlier forecast of 3.25 percent.

The bank said in a research note that it does not expect the U.S. central bank to opt for an intermeeting rate cut "without a crash in the equities market."

(Reporting by Richard Leong, Editing by Chizu Nomiyama,)