U.S. recession may be as deep as in 1990s: Merrill

NEW YORK (Reuters) - The United States is in a recession that could be much worse than it faced in 2001, and closer to the sharper economic slump of the 1990s, Merrill Lynch said on Thursday.

The bank also said the U.S. Federal Reserve will likely remain in "aggressive rate-cutting mode" as a result, cutting rates by 50 basis points on March 18.

Merrill argued the manufacturing slowdown in the U.S. mid-Atlantic region showed a "collapse in business confidence", to levels not seen since the 1990s recession.

"A pullback in the outlook of this magnitude could be extremely corrosive to the economy because it means shuttering production, slashing inventories, deeper job cuts and even canceling capital expenditure plans," Merrill said in a report.

The Philadelphia Federal Reserve's business activity index, a reading on the factories in the mid-Atlantic region that is viewed as a precursor of national factory performance, fell to minus 24 this month, below expectations for a minus 11. Readings below zero show contraction in the industrial sector.

The six-month outlook in the region has collapsed from a cycle high of 39.6 in October to minus 16.9 in February, the steepest decline ever recorded by the Fed report, the bank noted.

"The debate is no longer about whether the economy is in recession, in our view, it is about how hard the landing will be," Merrill Lynch said.

(Reporting by Walter Brandimarte; Editing by Neil Stempleman)