*Consumer sentiment off 4.6 pct despite rate, fiscal stimulus
*Mortgage demand jumps 6.4 pct in Dec as rates fall sharply
*Pressure still on for more rate cuts, government spending
By Wayne Cole
SYDNEY, Feb 11 (Reuters) - A key measure of Australian consumer sentiment slid in February as fear about the future overshadowed a steep rate cut and a second fiscal package, putting the onus on policy makers for yet more stimulus.
The darkening mood came even though consumers seemed confident enough to go house hunting, with demand for mortgages jumping by the most in over eight years in December.
"The disappointing fall raises the risk that consumers will save more of their cash flow, and that further policy response will be required to ensure some modest growth in consumer spending," said George Tharenou, an economist at UBS.
"That's consistent with our view that further rate cuts will be needed to stabilise the economy," he added. UBS sees rates at 2 percent by May, down from already record lows of 3.25 percent.
The survey of 1,200 people by the Westpac-Melbourne Institute showed its index of consumer sentiment fell 4.6 percent to 85.8 in February. That came on top of a 2.2 percent drop in January and left the index 11.9 percent down on February last year.
While consumers felt better about their own finances right now, that was drowned out by fears about the economic outlook given the tide of dismal news from abroad.
"This is a truly unique result," said Westpac chief economist Bill Evans.
"While consumers recognise the improvements in current conditions resulting directly from the aggressive policy stimuluses, they are unusually fearful of the future."
The survey was taken last week when the Reserve Bank of Australia (RBA) cut its key cash rate by 100 basis points to 3.25 percent, a drop of 4 percentage points since September.
The Labor government also announced a A$42 billion ($27.6 billion) spending package, including one-off payments to low and middle income workers.
THE FUTURE LOOKS GRIM, LET'S BUY A HOUSE
All this stimulus helped lift the survey's measure of family finances compared to a year earlier and even made consumers more confident about buying a major household item.
Thus, the survey's measure of current conditions actually firmed by 3.9 percent in February to 95.6.
The balming effect of lower rates was also clear in a revival in housing demand in December. The number mortgage commitments for owner-occupied housing rose a surprisingly strong 6.4 percent in the month, the biggest gain since May 2000.
Mortgages for new housing jumped over 15 percent and there was a 10 percent rise in borrowing for building homes, which will be a relief to a very weak construction market.
Yet, uncertainty over the future has only grown as talk of global recession fills the media here. "I put this down to global policy makers/institutions repeatedly talking the global economy down and the subsequent press that gets," said Adam Carr, a senior economist at broker ICAP. "They should do the world a favour and just shut up."
The impact on consumers' psyche showed as measures of family finances for the coming year and economic conditions in the next 12 months and five years all sank. As a result Westpac's measure of expectations fell a steep 10.5 percent in February.
"We have never seen, in the 35 year history of the survey, such a divergence in current conditions and expectations," said Westpac's Evans. "This is a serious challenge for policy."
Perhaps haunting consumers most is the prospect that unemployment might rise sharply this year and next.
Labour data for January are out on Thursday and analysts expect the jobless rate to climb to 4.7 percent, its highest since September 2006. The government itself is now forecasting a rise to 7 percent in 2010, a level not seen in seven years.
"The extent to which the unemployment rate rises will be the primary determinant of the depth and duration of this slowdown," said Su-Lin Ong, a senior economist at RBC Capital Markets.
"This uncertainty is likely to be the principal factor weighing on consumer confidence for much of this year." (Editing by Kazunori Takada)