TORONTO (Reuters) - A winning week on the Toronto Stock Exchange after last Monday's brutal start may have heartened frazzled investors, but analysts are still slashing their forecasts for the Canadian market.

The TSX's main index, the S&P/TSX composite, rose 157.72 points, or 1.2 percent on the week, to close at 12,894.14 Friday, overcoming Monday's 604.09-point dive, the index's biggest one-day decline in about seven years.

Much of the rally was attributed to US Federal Reserve's surprise 75-basis-point cut to its key lending rate on Tuesday, which helped alleviate some fears that the US economy was about to sink into recession.

The shot in the arm helped boost equity markets around the world, and analysts are anticipating a further 50 basis points of easing when the Fed meets again on Wednesday.

But some forecasters, including David Wolf, chief Canadian economist at Merrill Lynch, have said that they believe the US is already in a recession and that darker days are ahead for stocks.

Mr. Wolf has cut his 2008 forecast for Canadian stocks, predicting the worst yearly performance since 1990.

"We revised down our S&P TSX composite target to 11,300 at end-2008 and 12,500 at end-2009...The risk is that the trough in 2008 may be below the 10,000 mark."

Merrill's previous forecast for 2008 had already been one of the more bearish on Bay Street, targeting 13,300 for year-end.

Mr. Wolf said that, on average, it has taken 41 months from the onset of past US recessions for the TSX index to surpass previous cyclical peaks, and if history holds, it won't be until spring of 2011 that we again see last summer's 14,650 high on the TSX.

CIBC World Markets also readjusted its market forecast, and is eyeing a mid-year trough of 11,000 followed by a recovery over the second half of the year back to the 13,000 mark by year-end. That is revised down from a previous forecast of 16,000 by year-end.

Even if the US skirts a recession this year, the downturn in the US economy will inevitably hit the Canadian economy. Canada sends around 75 percent of its exports, accounting for about 40 percent of its economy, to the US.

"You've got the direct implications of a factory floor that extends beyond the 49th parallel into Canada," said Stewart Hall, market strategist at HSBC Canada.