* Stark says ECB can cut rates further
* Warns cutting rates too low risks aggravating crisis
* Idea of credit easing raises questions
* Nowotny euro entry rules should not be changed
(adds Stark, Nowotny quotes, detail)
By Andreas Framke and Krista Hughes
LUXEMBOURG/BASEL, March 9 (Reuters) - A top European Central Bank official added to signs the bank is nearing the end of its record run of interest rate cuts on Monday, warning that slashing rates too low could aggravate the financial turmoil.
"Of course ... there remains room for further manoeuvre on money policy. But this will not fundamentally solve the problems which have caused the financial crisis," ECB Executive Board member Juergen Stark said in speech in Luxembourg.
"The contrary could be the case... too low rates might in fact aggravate them," he added.
The comments mirror ones he made in a newspaper interview over the weekend. They also dovetail with a general reluctance among ECB policy makers to follow the U.S. Federal Reserve's example and slash interest rates to the bone. (for story please click [ID:nL7516317]
Stark added that 2009 would be a very difficult year for the euro zone. "In our view the economic outlook remains surrounded by uncertainty."
"We in the ECB Governing Council anticipated in our interest rate decisions that there will be bad news to come for the first quarter of 2009," he said.
The ECB cut euro zone interest rates to a all-time record low of 1.5 percent last week. The latest Reuters poll shows analysts are now increasingly convinced the bank will cut them to 1.0 percent or lower before the middle of the year (For poll click on [ECB/INT].)
Speculation has also been growing that as the bank runs out of interest rate ammunition it will have to switch to unconventional tactics like buying up bonds, something already being pursued by the Fed and Bank of England.
But Stark said such moves raised potential problems. "Central bank measures aimed at easing credit conditions have not been met with undivided enthusiasm. Commentators have worried about a host of issues," he said.
"Will the expansion of central bank balance sheets ultimately lead to inflation? As central banks are seen as switching attention from implementing monetary policy by steering short-term interest rates to targeting the composition and size of their balance sheets, have they lost their instrument... Have they become intransparent and unpredictable?"
EASTERN CHANGE?
ECB Governing Council Ewald Notwotny showed less committal when asked by reporters whether the ECB would cut interest rates again in April.
"We can't say that yet... we will act appropriately," he said on the sidelines of a meeting of central bankers at the Bank for International Settlements in Basel.
He also said there was no need to jump to provide extra liquidity for hard-hit eastern European countries.
"There is no need to discuss this," he said when asked about the option of opening up ECB rules on collateral and widening its range of FX swaps to more eastern European countries.
The Austrian central bank chief also played down the idea of speeding up the process for joining the euro. (For highlights of Nowotny's comments please click [ID:nL9435779].)
Stark added that central banks could not cure the world's financial ills on the their own, saying that governments needed to be prepared to do more if necessary.
"Central banks can alleviate liquidity risks. But they cannot address the perceived problems that impair the financial system," he said.
"The commitments (by governments) to provide support are already substantial. But it will take time for the measures to be completely implemented and to show their full effects."
"In case these measures prove to be insufficient, they need to be complemented by further actions to address problems on the asset side of banks' balance sheets," he added.
(reporting by Krista Hughes and Andreas Framke, writing by Marc Jones in Frankfurt; Editing by Ron Askew)