* ECB cut would take main rate to new low
* Euro zone economy still in "severe recession"
* Second quarter of 2009 "could be better"
* Deflation risks limited but must be checked
By Jan Strupczewski
WASHINGTON, April 26 (Reuters) - The European Central Bank is likely to cut its main refinancing rate by a moderate amount on May 7 and announce less conventional ways of monetary policy easing, ECB Governing Council member Guy Quaden said on Saturday.
"On that occasion a new cut for our main interest rate is surely not excluded. It will probably be moderate but it would bring our main rate to a new, historically low level," Quaden told reporters.
"We will also discuss and probably decide other nonconventional measures," he said without elaborating on what these measures could be. Economists speculate the ECB could start buying bonds from banks or companies.
The ECB has cut interest rates by 300 basis points since October to 1.25 percent and markets expect another 25 basis point cut on May 7.
In an apparent reference to market speculation the bank could treat 1 percent for its refinancing rate as the floor, Quaden said that after May 7 he would make up his mind on further policy decisions on data, rather than on principle.
"For the meeting after May 7 -- I am a pragmatic, absolutely not a dogmatic. My own assessment of what will be most the appropriate rate and other decisions in the coming months will depend on the information I will receive," he said.
He said the ECB would closely monitor the risk of inflation turning into deflation.
"I think that the risks for deflation in the euro zone remain limited, but they exist and they have to be closely monitored," he said.
Quaden said the euro zone economy was showing signs of stabilization but was not out of the woods yet.
"We are still in a severe recession but it seems that in different parts of the world, including the euro zone, the slowdown has begun to moderate and after a dramatic last quarter of 2008 and a very bad first quarter of 2009, the second quarter of 2009 could be better -- let's say, less bad," he said.
"We are not at yet at the turning point of economic activity."
ECB Governing Council member Ewald Nowotny expressed a similar view.
"There are some positive signs but the picture is with a high degree of uncertainty. We have mixed signals," he told reporters.
G7 SEES WEAK OUTLOOK
Group of Seven finance ministers and central bankers said on Friday the global economy may be past the worst phase of a recession although recovery was not yet assured.
The G7 said after a meeting that economic activity should begin to recover later this year. But they said the outlook remained weak and there was a risk the global economy may still worsen.
The G7 also discussed an International Monetary Fund report showing European banks would have to write down $750 billion in bad loans and securities through 2010 -- a sum the Europeans have questioned on grounds of methodology.
Christian Noyer, ECB governing council member and Bank of France governor, said stress tests carried out by the Bank of France on French banks show that they are sound.
"Our own stress tests, that we do regularly ... give us every confidence in the capacity of banks to get through the period ahead," Noyer told a news conference on the sidelines of the spring meetings of the IMF and World Bank.
But he said there was no plan to release the results of the tests, in contrast to the United States where they will be publicly disclosed for the top banks on May 4.
"At this stage I do not envisage that, but we are not at all in the same situation," the French central banker said. "The United States was confronted with a set of problems that we do not have." (Additional reporting by Anna Willard; Editing by John O'Callaghan)