* ECB seen cutting main refi rate by 50 bps to 1.0 percent
* Likely to extend maximum terms of liquidity operations
* Expected to narrow gap to overnight deposit rate
By Marc Jones
FRANKFURT, April 2 (Reuters) - The European Central Bank is set to fire another salvo of funding at banks on Thursday and take euro zone interest rates down to new all-time low of 1.0 percent in what could be its last rate cut for some time.
In a further twist it looks likely to tweak its overnight deposit rate -- the rate currently setting the bar in money markets -- to avoid driving interbank rates too low.
Economists are also eager to hear if policymakers are any closer to following the U.S. Federal Reserve and the Bank of England into the uncharted waters of quantitative easing, although expectations remain distinctly low.
The vast majority of analysts polled by Reuters see the ECB cutting its main refi rate by another 50 basis points when it announces its decision at 1145 GMT. (For Reuters poll please click [ECB/INT]).
But with money market rates now being steered by the bank's overnight deposit rate, focus is now just as much on that.
"We expect 50 basis points from the policy rate and 25 basis points from the deposit rate," said Goldman Sachs economist Erik Nielsen.
Like many he also tipped the bank to extend the length of time it lends commercial banks money for to a year from the current maximum of six months now. (For story double-click on [ID:nLQ384302])
Cutting the refi rate to 1.0 percent and the deposit rate to just 0.25 percent would narrow the ECB's rate corridor, an approach it tried late last year and then abandoned after banks began stashing billions of euros in its overnight account rather than lend on.
But analysts argue commercial banks would be unlikely to do that again, especially if the ECB extends the maturity of its tenders.
The Frankfurt-based central bank has already cut its benchmark rate five times from 4.25 percent since last October as the 16-country economy has gone from bad to worse.
The latest data have shown little sign of a let up in the bad news. Economic forecasts have continued to be slashed and policymakers are still feeling in the dark to try and pinpoint an end to the global financial crisis.
Euro-zone unemployment rate jumped more than expected in February to 8.5 percent, while the Organisation for Economic Cooperation and Development warned this week it could reach almost 12 percent in 2010. [ID:nL1935597]
The OECD also predicted the economy would plunge 4.1 percent this year, far worse that the ECB's current worst case scenario of 3.2 percent, and lending data now show banks are cutting off the supply of loans to firms and consumers.
LAYING A FLOOR
Policymakers have delivered a steady stream of hints over the last few weeks that they will cut rates to 1 percent, but they still appear split on whether that will mark the lowest point.
The Reuters poll showed most analysts think the ECB will leave rates on hold at 1.0 percent until the end of 2010. However, 23 of the 76 asked predicted rates will be below that level come September.
"The ECB may signal that the floor has been reached, given that several governing council members had previously named 1 percent as an absolute floor," said Nomura analyst Laurent Bilke in reference to recent comments from German Bundesbank chief Axel Weber.
"Alternatively it may stress a lot has been done already, which would support the case for the next move, if any, being a 25 basis point rate cut."
He also questioned whether the President Jean-Claude Trichet would provide any clues that the ECB is edging towards quantitative easing measures -- otherwise known as printing money -- in the 1230 GMT post-rate decision question and answer session.
"Corporate bonds, commercial paper or asset backed securities have been mentioned. This seems to be advocated by the ECB Vice President but we doubt that all the governors have embraced the idea yet," said Bilke.
Goldman's Nielsen agreed. "I don't expect them to say too much more on quantitative easing. They will say that all options are on the table but nothing more concrete than that."
"I don't there is a big need right now, they should get ready for it but there is also the fact there is very little they can actually buy," he said referring to laws that stop the ECB from buying debt directly from governments.
For a graph of major central bank rates, please see: http://static.reuters.com/resources/assets/?d=20090305&t=2&i=FINANCIALRATES&w=&q=
For recent ECB policymaker comments please click [ECB/QUOTES]
(Reporting by Marc Jones; Editing by Ron Askew)