May 7 (Bloomberg) -- Merrill Lynch & Co. expects defaults on U.S. consumer loans and credit cards will rise, putting strain on the world's largest economy, Chief Executive Officer John Thain said.

``Continuation of falling home prices, rising food prices, rising energy prices and higher unemployment will result in a pull back on the part of U.S. consumers,'' Thain said at a press briefing in Mumbai today. That ``will continue to drag the U.S. economy for the next 6 to 12 months.''

The largest U.S. brokerage has no immediate plans to raise more capital, Thain said. Merrill has written down $31.7 billion in assets while its stock plunged 45 percent since the beginning of 2007 as the meltdown in the U.S. subprime-mortgage market spawned a global credit squeeze.

Thain, Merrill's chairman and CEO since December, aims to restore profitability at the securities firm after three consecutive quarterly losses. He has raised more than $13.6 billion to bolster capital, overhauled risk-management practices to pare down credit-market losses, and recruited executives from Goldman Sachs Group Inc., where he worked for about 25 years.

The Federal Reserve is unlikely to cut rates further, Thain said in an interview with India's CNBC-TV18 television channel. Fuel production is likely to increase globally over the next two years after oil rose to a record yesterday, he said.

India currently offers the best investment opportunity for Merrill in Asia, Thain said. Capital flows are likely to continue into Asia as a whole as U.S. economic growth falters, he said.

New York-based Merrill is a passive 20 percent investor in Bloomberg LP, the parent of Bloomberg News.

To contact the reporter on this story: M.C. Govardhana Rangan in Mumbai at grangan@bloomberg.net; Pooja Thakur in Mumbai at pthakur@bloomberg.net.

Last Updated: May 7, 2008 07:44 EDT