* Credit growth rebounds in Jan, helped by rate cuts
* Raises speculation central bank may not cut rates next week
* Reuters poll sees a small cut, positive growth in Q4 (adds poll, fresh comments)
By Anirban Nag
SYDNEY, Feb 27 (Reuters) - Australian private sector credit rebounded in January, helped by robust demand for loans from businesses and home buyers, adding to the case for an easing in in the feverish pace of interest rate cuts next week.
Figures from the Reserve Bank of Australia (RBA) on Friday showed total credit rose by 0.6 percent in January, well above a forecast 0.2 percent rise. That marked a bounce from a 0.2 percent fall in December -- the first contraction since 1992.
The RBA holds its monthly policy meeting on March 3 and the market has been divided on whether it will cut by 25 basis points or 50, after cutting by one percentage point to a record low of 3.25 percent on Feb. 3. It has slashed rates by a massive 400 basis points since September.
With the economy seen to have averted an outright contraction in the final quarter of 2008, there is growing speculation the RBA might even hold rates to assess events after the sharp reductions and significant fiscal stimulus from the federal government.
"We still think the RBA will cut by 50 basis points next week, but it's more evidence that a pause is not too far away, even perhaps next week," said David de Garis, senior economist at National Australia Bank.
Credit growth for the year remained sluggish, slowing to 6.1 percent, its slowest pace since March 1994.
Finance for businesses rose 0.7 percent, while lending for housing rose by 0.5 percent as the aggressive rate cuts so far and generous government handouts to first home buyers lured Australians into the property market.
Still, with the outlook for global growth grim, financial markets are pricing in a further quarter percentage point cut next week and a slight chance of a 50 basis point cut.
A Reuters poll on Friday showed most analysts were expecting a cut from the RBA. Eight of the 19 analysts polled expected the central bank to lower rates by 50 basis points, while six expected a more modest 25 basis points reduction. Four saw no change, while one said it was too close to call.
Investors have pared expectations of a half a percentage point move after RBA Governor Glenn Stevens said last week the central bank had been pre-emptive in cutting rates and the effects are yet to be seen in the data, though they were being felt in businesses around the country.
POSITIVE FOURTH-QUARTER
Indeed, fourth-quarter capital spending by businesses released on Thursday showed a surprise jump, lifting expectations that the Australian economy had escaped an outright contraction in the fourth quarter.
Business investment accounts for 10 percent of Australia's A$1 trillion in gross domestic product (GDP). It jumped 6 percent in the December quarter, confounding analysts who were expecting a sharp drop as companies cut back on spending amid the downturn.
The fourth-quarter GDP report is due on March 4 and a Reuters poll showed the Australian economy growing by 0.1 percent, quarter-on-quarter and 1.2 percent from a year earlier.
"Its anaemic growth by Australian standards," said Micheal Blythe, chief economist at Commonwealth Bank. "But it is an outcome that will look a whole lot better than just about every other advanced economy."
Six of Australia's top 10 trading partners are already in recession, raising the risk that domestic economy will slip into one soon. Japan's economy plunged into a recession with its worst quarterly decline since 1974, while China's exports in January fell nearly a fifth.
Earlier this month, the RBA cut its forecasts for growth, expecting the economy to grow by just 0.5 percent in 2009, while unemployment is likely to rise significantly in the months ahead, from the current 4.7 percent.
With the strong headwinds from the global economy continuing to have an adverse effect on the domestic economy in the near term, some analysts said the RBA might just opt for a "modest" rate cut next week.
"We continue to think that the dismal global data prints since the last board meeting, developments in European banking, and a step up in high profile job cuts in Australia justifies a modest 50 basis point cut next week," said Su-Lin Ong, senior economist at RBC Capital.
"It is shaping up as a finely balanced decision."