UPDATE 2-Buffett sees U.S. downturn longer, more painful

(Recasts, adds details, background throughout)

By Ben Harding

MADRID, May 21 (Reuters) - The U.S. economy will feel more pain from the global financial crisis and for longer than many people think, U.S. billionaire investor Warren Buffett said on Wednesday.

The effect of the downturn on financial institutions is the worst since World War Two, he said, but for banks at least, the worst is probably behind them after the U.S. Federal Reserve staved off "really contagious financial panic" with its intervention to prop up investment bank Bear Stearns BSC.N.

"I think the tidal wave that hit various financial institutions since last August has largely been recognised and felt," Buffett, the world's richest man, told a news conference in Madrid. "In terms of the effect on the economy in the United States, we don't know, but I think it will be longer and deeper then many people do. There could well be a lot to come."

Speaking on the last leg of a European tour taking in Switzerland, Germany, Italy and Spain, Buffett admitted he should have sought out acquisitions on the continent long ago.

"Why not earlier? That's easy. I made a mistake. Better late than never. I should have been here 10 years ago," said Buffett, whose investment company Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research) owns more than 70 companies, including reinsurer General Re. Berkshire last month entered a deal with M&M's candy maker Mars Inc to buy chewing gum maker Wrigley Jr Co WWY.N for $23 billion.

"There are likely to be other trips in the next few years," Buffett said, whose fortune is estimated at $62 billion, adding that a separate Asian trip was also likely.

One motive for Buffett's visit may be to reduce Berkshire's exposure to the dollar, which he said was likely to fall in value over the long term because policies perpetuating its fall were being continued.