UPDATE 2-Toll Brothers CEO sees downturn worse than 1980s

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By Ilaina Jonas and Helen Chernikoff

NEW YORK, Sept 18 (Reuters) - Toll Brothers Inc (TOL.N) Chief Executive Robert Toll said on Tuesday the Federal Reserve's rate cut may signal that the economy is worse than previously thought and likely doesn't indicate the U.S. housing market has hit bottom.

Earlier Tuesday, the Federal Reserve slashed the key federal funds rate by a half-percentage point, the first cut in the rate in more than four years.

"I would have done a quarter instead of a half because it signals we're in deep doodoo," Robert Toll said, speaking at the Credit Suisse Homebuilder Conference.

Some analysts called it an aggressive move by the Fed against possible further weakening in the economy.

The housing slump has worsened since August, when the credit markets seized up, and getting a mortgage became more difficult.

Toll said the current housing market downturn is worse than the ones between 1980 and 1982 and between 1987 and 1991.

"Is this a turning point?" Toll asked. "Does anyone want to call this the bottom because of the Fed cut? I don't think you can call it yet."

Still, the Fed's action sent housing stocks soaring, with the benchmark Dow Jones U.S. Home Construction Index .DJUSHB up 6 percent and Toll's share jumping 8.7 percent at $22.72 on the New York Stock Exchange.

The rate cut alone will not bring back risky subprime or "Alt-A" mortgages, Toll said.

"They will come back to a lesser degree, but they will come back as they deserve to, depending upon the underwriting," Toll said.

Subprime loans have a greater risk of default. Alt-A loans are less risky than subprime mortgages but more risky than conventional loans because they require little income documentation.

Toll also said that when the housing market does recover, he expects it to exceed past records.