Jan. 23 (Bloomberg) -- Merrill Lynch & Co. cut its 2008 U.S. economic growth forecast in half, saying the country's housing recession has ``spilled over to the rest of the economy.''

The gross domestic product will expand 0.8 percent this year, down from an earlier forecast of 1.6 percent, New York-based economists Sheryl King, Kathleen Bostjancic and David Rosenberg wrote in a report dated Jan. 22. They estimated the U.S. economy, the world's largest, will grow 1 percent in 2009.

The report didn't mention yesterday's unexpected 75 basis point interest rate cut by the Federal Reserve, the first emergency reduction since 2001. The economists wrote that they expected the Fed would start cutting rates ``much more aggressively.''

``Rising unemployment, $6 trillion in lost housing wealth combined with slumping equity valuations, and the lack of participation from the baby boomers for the first time in three decades likely will result in the worst consumer recession since 1980,'' the economists wrote. ```The healing process takes time as the bad debts get extinguished and balance sheets repaired.''

Yesterday, almost half of the world's biggest stock indexes fell into a bear market as concern the U.S. will slide into recession dragged down banking and retail shares across Asia, Europe and Latin America.

Asian stocks rebounded after the Fed rate cut. The MSCI Asia Pacific Index climbed 2.4 percent at 12:36 p.m. in Tokyo, after slumping 6.5 percent yesterday.

The U.S. economy may be ``one shock'' away from a recession, Lehman Brothers Inc. said yesterday, pointing to the global slump in equity markets as a possible ``tipping point.''

Chance of Recession

Lehman sees the odds of a recession in the world's largest economy at 40 percent, rising from a ``1-in-3 chance'' at the beginning of the year, said Paul Sheard, Lehman's global chief economist.

U.S. home prices will decline 15 percent this year and 10 percent next year, the Merrill Lynch economists said.

The economists said they anticipate job losses of 2.5 million, which may push the unemployment rate to as much as 5.75 percent by the end of 2008 and to 6 percent by early 2009. The jobless rate increased to 5 percent in December from 4.7 percent in November.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

Last Updated: January 22, 2008 22:54 EST