UPDATE 1-KBW sees end to US consumer-led recession in Q1 2010

June 29 (Reuters) - The U.S. consumer-led recession could end in the first quarter of 2010, and be followed by a period of slow growth as the U.S. consumer and corporate balance sheet is repaired and credit slowly becomes more available, analysts at Keefe, Bruyette and Woods said.

Analysts Frederick Cannon and Brian Kleinhanzl expect no U.S. economic growth, measured by gross domestic product, for six consecutive quarters -- a more bearish view than the consensus view of four quarters of negative GDP growth.

"The reason for our cautious outlook is the combination of rising unemployment, decreased consumer spending, and tight consumer and corporate credit," analysts wrote in a note to clients.

They expect the U.S. Federal Reserve to maintain Fed funds rate between zero and 0.25 percent for more than nine months, consistent with past interest rate periods after rate cuts have ceased.

They expect slight monetary tightening starting in the last quarter of 2009, and see the fed funds rate raised to 0.75 percent by year-end.

KBW analysts expect longer-term Treasury rates to rise through the year-end as increasing government spending and excess liquidity in the economy fuel higher rates.

Employment growth may be negative in 2009 and into 2010, with the rate of unemployment expected to rise progressively each quarter until early 2010, KBW analysts said.

The unemployment rate will eventually peak at 11 percent in the first quarter of 2010, lower than KBW's prior view of 12 percent peak unemployment, they said.

"We believe government hiring has impacted the rate sooner than we expected," analysts said.

Mortgage originations may increase modestly this year due to lower mortgage interest rates, KBW analysts said, adding they expect originations to be $2.4 trillion in 2009.

They expect a decline in originations to $2.2 trillion in 2010 due to continued macroeconomic weakness, lack of secondary mortgage market liquidity, higher mortgage rates, and a return to prudent underwriting standards.

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(Reporting by Tenzin Pema in Bangalore; Editing by Kavita Chandran)

((tenzin.pema@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: tenzin.pema.reuters.com@reuters.net)) Keywords: ECONOMY/RESEARCH KBW

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