* SNB keeps LIBOR target at 0.25 pct
* Drops offer to buy bonds, softens intervention threat
* To act decisively to counter any "excessive" rise in franc
* Says economic recovery underway but remains fragile
(Adds SNB, economist comment, updated franc)
By Sven Egenter and Lisa Jucca
ZURICH, Dec 10 (Reuters) - The Swiss National Bank started the long route back to normalising monetary policy on Thursday, slightly softening its pledge to fight a rise of the Swiss franc even as it held interest rates steady.
The central bank also dropped its offer to buy corporate bonds, the first signs it was easing drastic measures adopted in March to fight the deepest recession in Switzerland in over three decades which ended in the third quarter.
"Expansionary monetary policy cannot be maintained for the next three years because price stability will be compromised in the long term," SNB Chairman Jean-Pierre Roth, who retires at the end of this year, told a news conference after the decision.
"However, a swift correction in monetary policy would be precipitate since the inflation outlook is still associated with downside risks," Roth said.
The Swiss economy has overall emerged less bruised than many of its peers from the global crisis despite its large banking sector and the deep recession ended in the summer.
Roth said while the financial industry was gradually recovering, another deterioration could not be entirely ruled out and a risk of deflation remains.
"The most important news was that the SNB is stopping buying bonds," said ZKB economist David Marmet. "It could also have been expected that that would have been the first thing to do when ending unconventional measures."
SOFTER ON FX
The central bank renewed its pledge to fight any rise in the franc against the euro, but tweaked its language slightly to indicate it would act to prevent only an "excessive" rise.
Roth said the franc had remained stable against the euro, showing the SNB's policy had been effective.
"An appreciation of the Swiss franc against the euro would run counter to the relaxation in monetary conditions brought about through the interest rate channel. This is why the SNB will continue to act decisively to prevent any excessive appreciation of the Swiss franc against the euro," he said.
Board member Thomas Jordan said the SNB wanted to have a big impact when it intervened and therefore bought both euros and U.S. dollars. "Our goal is preventing a rise against the euro but we do that via various currencies."
The franc dipped briefly after the SNB decision, with the
euro briefly rising to a session high around 1.5131 francs
"This is a weaker statement than back in September when the SNB said it would fight any appreciation of the currency. It indicates that the bank will accept a somewhat stronger franc against the euro in coming months," SEB analysts said in a note.
NO RATE HIKE SOON
The SNB said after its quarterly policy meeting that its target band for the 3-month Swiss franc LIBOR will remain at 0.00-0.75 percent. It will continue to aim to keep the LIBOR at 0.25 percent and confirmed it would provide the economy generously with liquidity as uncertainties remained high.
The SNB has already scaled back some of the liquidity supply measures, as has the European Central Bank, which last week announced first steps to unwind some of the extraordinary measures taken to prop up the euro zone economy.
Central bankers have warned about a bumpy road ahead towards a self-sustained recovery, key for a tightening of monetary policy. Most economists do not see the SNB hiking rates before the second half of 2010.
The economic recovery should gain traction in 2010, the SNB said, forecasting gross domestic product growth of 0.5 to 1.0 percent after a decline of 1.5 percent in 2009.
The central bank left its inflation forecast almost unchanged, predicting an average price rise of 0.5 percent for 2010 and 0.9 percent for 2011, surprising some economists who said that indicated any rate hike was unlikely to come soon.
All 41 economists polled by Reuters had expected the central bank to leave rates unchanged and a large majority had seen the SNB continuing its foreign exchange market intervention policy.
For a table with SNB's forecasts ... [nWEA5002]
For latest stories on the SNB ... [RTRS-LEN-SNB-INT]
For stories on the economy ... [RTRS-LEN-MCE-ECI]
For a chronology on rate changes since 2000 ... [nSNBCHRONO]
(Additional reporting by Emma Thomasson, Sam Cage, Catherine Bosley and Jason Rhodes; Editing by Mike Peacock)