Australia faces economic turbulence from US meltdown-PM

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SYDNEY, Oct 28 (Reuters) Australia, one of the best-performing advanced economies, faced looming economic turbulence from the subprime lending meltdown in the United States, Prime Minister John Howard warned today.

On Friday, Australian Treasurer Peter Costello had warned of an approaching international financial ''tsunami'', with China at its epicentre.

''We are entering a more difficult time of economic management.

There are storm clouds on the international economic horizon,'' Howard told Channel 9 television today.

He was speaking on the campaign trail for Australia's federal election on Nov. 24, which the coalition government is fighting largely on its economic credentials.

Battling poor opinion polls, Howard faces the prospect of an official interest rate increase by the Reserve Bank on November 6, during the election campaign.

''I don't think its panicking anybody to say that the subprime meltdown in the United States, which has already had an impact on market interest rates, because of the globalised nature of our economy, is going to have an effect,'' Howard said.

In an interview with the Sydney Morning Herald on Friday, Costello said global financial markets faced a ''huge tsunami''.

The US economy would weaken in the wake of its subprime mortgage meltdown, and the breakneck pace of Chinese growth also could not continue, Costello said.

At some stage, likely to coincide with a move to a floating of the Chinese currency, China would unleash greater instability on global markets than the United States had, he said.

''That will be a wild ride when that happens. That will set off a huge tsunami that will go through world financial markets,'' said Costello, one of Australia's longest-serving Treasurers.

Today, Howard pledged to keep interest rates down in Australia, but admitted that rates could rise.

''The (Reserve) Bank will make a decision on interest rates ...

Interest rate changes happen, they go up and they go down, according to economic circumstances,'' he said.

REUTERS SZ PM0755

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