ANALYSIS-Main Street may rain on Wall Street recovery parade

By Emily Kaiser

WASHINGTON, May 7 (Reuters) - Wall Street seems to have concluded that the worst of the credit crisis is over and investors are looking to better economic times ahead, but Main Street is sending the opposite signal.

While banks have raised cash by the billions to shore up balance sheets that were battered by bad bets on mortgages and other loans, the front-line staff in charge of doling out that money to consumers and companies remain downbeat, suggesting that the economy may stay in the doldrums for some time.

The U.S. Federal Reserve's quarterly survey of senior loan officers, released this week, showed widespread tightening of credit. The percentage of banks reporting tougher lending standards was close to, or above, historical highs for nearly all loan categories in the survey.

Banks clamped down on loans to companies large and small, to prime and subprime mortgage holders, and on credit cards, home equity lines and other consumer credit. Most banks blamed a less favorable economic outlook for the tightening terms rather than their own bruised balance sheets.

That does not bode well for spending, which accounts for the bulk of the U.S. economy, or for corporate profits.

"Main Street has just entered the act. The peak of the pain is not visible yet," said Asha Bangalore, an economist with Northern Trust in Chicago.

The consumer strains are well-documented. Aside from the credit contraction, gasoline and grocery prices are on the rise, the housing market remains distressed, and consumer confidence is at recessionary levels. Tax rebate checks are in the mail, but that alone cannot compensate for the credit clamp-down and inflation pressure.

"Given that households are strapped financially, it is far-fetched even with the stimulus checks to expect a sharp increase in consumer spending," Bangalore said. "You have seen auto sales numbers for April, they posted a sharp drop."