Turmoil in the credit markets will take a toll on the U.S. economy but the full impact will not be clear for another two or three months, William Rhodes, senior vice chairman of Citigroup Inc, said on Thursday.

Only when positions in subprime mortgages and other financial instruments are unwound will the extent of the damage become clear, Rhodes told a meeting of the World Economic Forum.

But to me it seems very clear, as I mentioned before, that in the United States there will be an impact on the real economy, and that depends on the impact on the consumer, he said.

In a prescient warning in March, Rhodes said he expected a significant market correction within the next 12 months and urged greater prudence in investing and lending.

If it affects in any way strongly the consumer, then you've got a problem, Rhodes told reporters later. We'll have to see how it rolls out. It's still too early to say.

The Organisation for Economic Cooperation and Development on Wednesday trimmed its forecast for U.S. growth because of the fallout of a slump in housing stemming from subprime mortgage defaults. The Paris-based forum said it could not rule out a recession.

Rhodes said his worry now was that an economic downturn could fan protectionism and nationalism.

This world Goldilocks economy has been fuelled by open trade, and I'm very concerned about what I see in the markets, the veteran banker said.

Lax risk controls at commercial banks were one reason for the crisis engulfing the credit markets, which was triggered by a wave of defaults on mortgage loans to subprime, or less creditworthy, borrowers in the United States, Rhodes said.

But he said banking regulators, including the Federal Reserve, should also have acted more swiftly on subprime loans.

GENEROUS

In a paper presented to a Fed conference last week, Ed Leamer, director of an economic forecasting group at the University of California, gave the central bank a failing 'F' grade for understimating the impact of the housing downturn.

My own view is that that's a generous grade, Stephen Roach, Morgan Stanley's Asia chairman, commented.

A senior Bahraini banker said the strains in global markets offer good opportunities for Indian, Chinese and Middle Eastern companies to make acquisitions.

There are some excellent buys in the near future, so I think you'll see a lot of money from Asia and the Middle East going to Europe and the U.S. in terms of acquiring certain very good deals, said Khalid Abdulla-Janahi, executive chairman of Shamil Bank.

Kristin Forbes, a professor at the Sloan School of Management at the Massachusetts Institution of Technology, shared Rhodes's concern about rising protectionism.

The fact that protectionism has been increasing and anti-globalisation has been increasing though the economy has been doing quite well for several years is what makes me particularly worried now as growth slows, which it will, Forbes said.

The European Union's competition commissioner, Neelie Kroes, said it was reasonable for countries to exercise oversight over foreign investments, including purchases by sovereign wealth funds, but it was important that they keep markets open.

Saying that the only the way to protect ourselves is to close the fortress -- no way, Kroes said.

Citigroup