WASHINGTON Bolstered by a stark assessment of the U.S. economy from Federal Reserve Chairman Alan Greenspan, investors and analysts are looking for a half point cut in interest rates when he and his colleagues meet here this week.

Economists with financial services firms Salomonsmithbarney, Merrill Lynch and First Union have all said the Federal Reserve Open Market Committee is likely to reduce its benchmark rate from six to 5.5 percent at the end of its two-day meeting on Wednesday, AFP reported.

Given the perilous state of the economy, reflected in a spate of dismal government reports, a quarter point easing in monetary policy by the Central Bank had long been expected.

But what spurred speculation that a bigger cut might lie ahead was a surprisingly blunt statement to Congress on Thursday from Greenspan, who told the Senate Budget Committee that the U.S. economy had all but stopped growing.

"As far as we can judge, we have had a very dramatic slowing down and indeed we are probably very close to zero at this particular point," the chairman said.

Greenspan attributed the downturn to a buildup in business inventories, which has forced companies to impose sharp production cutbacks, and said growth in the fourth quarter -- for which official figures will be released next week -- would likely be "a very small positive."

The U.S. economy expanded at annual rate of just 2.2 percent in the third quarter after a red-hot 5.6 percent in the second, prompting the fed to slash its benchmark federal funds rate by half a point to six percent on January 3.

"Although a half-point decline in the funds rate would be extraordinary in light of the surprise action undertaken only a few weeks ago, the case for continuing aggressiveness is a strong one -- and that is what we expect," said analyst Robert Diclemente of Salomonsmithbarney.

With consumer confidence eroding, and in the absence of serious inflation worries, Fed policymakers have ample scope for easing up on interest rates, he said.

"In so doing, the Fed should help set the stage for a resumption of healthy growth before the year is out."

Citing a weaker than expected 0.8 percent fourth quarter gain in employment costs, a key indicator of wage-driven inflation, Merrill Lynch economist Stan Shipley said "labor pressures are diminishing as the economy cools."

"The Fed should ease Fed funds rates by 50 basis points at next week's ... meeting."

In his Senate testimony, Greenspan did not foresee a recession on the horizon but acknowledged it was still unclear if the abrupt turnaround in momentum had managed to "breach the fabric of consumer confidence."

Consumer spending is responsible for two thirds of U.S. output and any abrupt plunge in confidence could be seriously destabilizing. In December the University of Michigan said its confidence index recorded its steepest drop since the 1990 recession. Another sizable fall is feared in January.

Although the chairman assured senators last week "we do not yet see the actual immediate implications of what recessions look like," some of the thousands of workers who are about to lose their jobs might think differently.

Three big U.S. companies, Lucent Technologies, AOL Time Warner and Whirlpool, last week announced planned layoffs totaling 24,000. On Friday, the **** Wall Street Journal **** said Worldcom was expected to cut its 77,000-strong work force by 10 to 15 percent.

Employers too are clamoring for help from the Fed, citing rising energy costs.

"If the Fed does not lower rates, I fear capital spending plans will continue to erode in 2001 and put the expansion in even greater jeopardy," warned Jerry Jasinowski, president of the National Association of Manufacturers.