Sweden raises rates as global tightening nears end

* Sweden raises rates by 25 bps, but lowers Q4 rate outlook

* ECB, BoE expected to hold rates; next moves seen down

* Growth concerns becoming more dominant for policymakers

(Releads with Riksbank rate rise, adds quotes)

By Nicklas Pollard and Jan Dahinten

STOCKHOLM/SINGAPORE, Sept 4 (Reuters) - Sweden raised interest rates on Thursday for possibly the last time in 2008 and Europe's top central banks looked set to confirm that global rates have peaked as economic growth concerns start to outweigh inflation risks.

The Riksbank increased its key interest rate by a quarter percentage point to 4.75 percent, following Indonesia's central bank which earlier in the day raised rates for the fifth time this year. Analysts regarded both moves as the last rise by either central bank this year.

The European Central Bank and the Bank of England are widely expected to leave their rates unchanged later on Thursday, with policymakers worldwide increasingly looking to the risk of slowing global growth outweighing the problems of inflation, which is easing as commodity prices fall.

"You could say that global tightening is coming to an end. Most central banks will use the excuse of slightly weaker growth and a turning point in inflation to stop raising rates," said Robert Prior-Wandesforde, an economist at HSBC in Singapore.

"In the developed world that is more than justified because interest rates, excluding Japan, could be described as tight."

The Riksbank's rate rise -- the 13th in a series that began in January 2006 -- was in line with the expectations of a narrow majority of economists polled by Reuters before of the meeting. However, some had believed a worsening economic outlook would persuade the bank to hold fire. (For details of poll please double click on [ID:nL4501945])

The central bank said inflation had continued to rise in Sweden -- it hit 4.4 percent in July -- but that risks to growth had risen. It lowered its outlook for interest rates, saying it saw the repo rate averaging 4.7 percent in the fourth quarter, down from a previous forecast 4.8 percent.

The Riksbank said raising rates would bring inflation close to its 2 percent target within a couple of years, adding that it had lowered its rates outlook "partly because the oil price and other commodity prices have fallen. Moreover, growth has slowed down more than expected both in Sweden and abroad".

ECB, BOE SEEN ON HOLD

The ECB began its monthly meeting of 21 policymakers at 0700 GMT, with all 83 analysts polled by Reuters expecting interest rates to be left at 4.25 percent when the decision is announced at 1145 GMT. [ECB/INT]

Updated projections from the bank's staff will give an up-to-date prognosis of the economic outlook which is not expected to make happy reading. Analysts expect 2008 and 2009 growth forecasts be revised down and inflation predictions to be pushed up for 2008 at least [ID:nLR513542].

"The ECB will have to acknowledge that the growth outlook has weakened and we expect the staff forecast to be revised down for 2009, probably to a mid point of 1.2 percent," said Deutsche Bank economist Thomas Mayer.

Inflation though remains the key concern of the ECB. It eased only slightly to 3.8 percent in August, roughly double the ECB's target.

Inflation in Britain is also roughly double the BoE's 2 percent target.

All the 67 analysts polled by Reuters [BOE/INT] expect rates to be held steady when the BoE announces its decision at 1100 GMT, though the speed and scale of an economic slowdown has convinced most that a cut is just a matter of time.

Britain's economy failed to grow in the second quarter of this year for the first time since the early 1990s and many analysts believe the country has already tipped into recession.

The BoE's nine-member Monetary Policy Committee was split three ways last month. Tim Besley wanted to raise rates to make sure high inflation did not spread through the economy. David Blanchflower wanted to cut rates to ease economic pain.

GROWTH VERSUS INFLATION

The growth versus inflation dilemma is playing out around the world. Earlier in the day Bank Indonesia satisified market forecasts with its fifth interest rate rise of the year, but economists predicted that this would mark the final increase in 2008 because of signs that inflation is peaking. [ID:nJKB000821]

It increased its overnight rate BIPG by 25 basis points to 9.25 percent to combat inflation that is close to 12 percent.

Canada's central bank held its key interest rate steady on Wednesday but signalled it was in no hurry to cut rates soon, even as it warned that the U.S. economic outlook could worsen. The move was widely expected and leaves the rate 1 percentage point higher than the U.S. equivalent. [ID:nN03507934].

Turkish central bank governor Durmus Yilmaz said on Thursday the bank will consider all options, including measured interest rate cuts, from September when its board meets amid improving inflation conditions [ID:nL4107368].

The bank would amend its monetary policy stance if oil and food price falls are permanent, Yilmaz told a conference.

Turkey left benchmark borrowing rate unchanged at 16.75 percent last month after raising rates by 150 basis points since May due to worsening inflation. Inflation in August was lower than expected due to a sharp fall in clothing prices.

Chile's central bank is widely expected to raise its benchmark interest rate by 50 basis points for a fourth month in a row, due to persistently rising consumer prices. The authority meets later on Thursday. [ID:nN03274471]

But HSBC's Prior-Wandesforde said that while inflation was peaking around the world, it was not set to collapse. That may mean central banks in emerging markets join in the pause in the present tightening cycle, but may have to raise again in future.

"In the emerging world monetary policy is very loose and behind the curve. They've been playing catchup but haven't caught up," Prior-Wandesforde said. (Additional reporting Adriana Nina Kusuma in JAKARTA, Krista Hughes in FRANKFURT, Christina Fincher in LONDON, Louise Egan in OTTAWA, and Maria Jose Latorre in SANTIAGO)

(Editing by Nick Edwards, Neil Fullick, David Stamp)