* ECB'S Liikanen says worst of crisis may be yet to come
* Says ECB could take rate action in March
* Says recovery has been seen in parts of financial markets
* Says economic crisis seems prolonged, spreading (Combines separates, adding details, quotes)
HELSINKI, Feb 12 (Reuters) - The worst of the global financial crisis may be yet to come, and the European Central Bank could cut interest rates next month, ECB Governing Council member Erkki Liikanen was quoted as saying on Thursday.
The ECB on Feb. 5 kept interest rates steady at 2.0 percent but signalled it would probably cut rates in March.
"I would not say that the worst is over yet, though in some parts of the financial markets improvement has begun to be seen," Liikanen said in an interview with Finnish online business newspaper Taloussanomat and news agency Startel.
Liikanen, one of several ECB policymakers who have said a March rate cut is possible, said that inflationary risks were balanced.
"Inflationary development and the markets' inflation expectations are now in line with our price stability objectives," Liikanen, who is also governor of the Bank of Finland, told the news agency.
"That gives us room to continue taking measures, and at the next meeting it is possible that we could move," Liikanen said in a Finnish-language interview. "Nothing, however, is decided in advance."
The ECB has been lending unlimited funds at fixed interest rates to commercial banks in the past few months, in a practice labelled "non-standard measures," in a bid to ease a global credit crunch.
But ECB policymakers have stopped short of indicating that the ECB could follow other central banks into direct asset purchases to support governments.
Liikanen said fiscal responsibility lies at the national level and the ECB could not directly finance governments.
"Ultimately, the management of public finances is a national matter in the monetary union," he said.
"According to our charter, the central bank cannot directly fund governments," he said.
Liikanen said there were some signs of recovery from the financial crisis, but the danger was not over.
PROLONGED CRISIS
"The economic crisis seems to be lasting longer and spreading," said Liikanen. "Economic growth is slowing everywhere, and world trade is contracting."
"The economic outlook is now very exceptional, the situation is more challenging than at the beginning of the millennium," Liikanen said. "Economic data show that we have moved to a longer period of weak economic development."
Liikanen said there had been some improvement in the functioning of markets since the collapse of Lehman Brothers in September, and the threat of system failure had decreased.
"Companies and citizens have seen that interest rates have come down," he said. "This is the bright side."
But he said the crisis had grown worse quickly, changing in the past four months from a financial market crisis into a global economic crisis.
"At first we thought in Europe that the crisis only affects countries with large financial centres," Liikanen said. "Soon, however, the problems spread to countries where home building and associated indebtedness had grown significantly."
"Now the recession has become global, and exporting countries like Finland suffer from it," he said.
"Now all the shocks are occurring at the same time, and one has to say that this crisis affects everyone," Liikanen said.
The economic troubles stem largely from heavy indebtedness, so "banks, companies and citizens have to reduce their excessive debt loads" before the situation will improve, Liikanen said, according to Taloussanomat.
He said that would take at least this year and next.
He warned that a resurgence of protectionism could be the worst outcome of the crisis. (Reporting by John Acher; Editing by Valerie Lee & Kim Coghill)