UPDATE 2-SNB can tighten soon if no more shocks - IMF

* IMF sees 2011 growth of 2.4 pct, 2012 of 1.8 pct

* Domestic demand strong, exports grow despite franc

* Swiss should clarify regulatory mandates of SNB, FINMA

* IMF warns against weakening "too big to fail" rules

(Adds IMF statement, comments on interventions)

By Emma Thomasson

ZURICH, March 28 (Reuters) - The Swiss National Bank should
be able to hike interest rates soon barring any more shocks as
the country's economic recovery is broadly based, the
International Monetary Fund said on Monday.

"Absent significant shocks, the monetary authorities should
be in a position to tighten in the near term," the IMF said in a
statement at the end of a regular visit to Switzerland.

At its quarterly monetary policy meeting earlier this month,
the SNB kept interest rates ultra-low despite an overall
improved outlook for the economy, citing risks from Europe's
debt crisis and the Japan disaster. [ID:nLDE72F1D8]

But the central bank dropped any reference to deflation
risks in its statement and raised its growth forecast, which
economists said opened the door for rate hikes later this year
although the record-high Swiss franc remains an obstacle.

The IMF forecast Swiss economic growth of 2.4 percent this
year, slipping to 1.8 percent next year as exports are dampened
by the strong franc, with risks mainly from geopolitical
developments and possible continued tension in the euro zone.

"Switzerland is experiencing a strong post crisis recovery
-- despite a marked exchange rate appreciation," the IMF said.

"Domestic demand has been supported by sound balance
sheets, low interest rates, a rise in employment and
immigration, while exports have picked up as a result of the
rebound in world demand and in spite of the Swiss franc
appreciation."

The SNB raised its 2011 growth outlook this month to around
2.0 percent from around 1.5 percent. The economy grew by 2.6
percent last year.

STRONG CURRENCY ALIGNED WITH FUNDAMENTALS

The IMF advised the SNB to give priority to strengthening
its capital cover -- hard hit by losses run up last year in
ill-fated interventions to cap the franc's rise -- rather than
paying dividends to Swiss national and state governments.

It also said any fresh SNB interventions should be limited
to smoothing disorderly movements of the exchange rate.

"While the Swiss franc is on the high side in a historical
perspective, continuing robust trade performance and large
current account surpluses suggest that the currency is still
broadly aligned with medium-term macroeconomic fundamentals."

The IMF said draft "too big to fail" regulation would be key
in limiting the risks posed by Switzerland's biggest banks --
UBS (UBSN.VX) and Credit Suisse (CSGN.VX) -- and warned against
allowing too much flexibility in tough capital requirements.

The strict Swiss proposals are due to come before parliament
later this year but are expected to face a bumpy ride ahead of
national elections. [ID:nLDE72M0HS]

"Swift adoption by parliament of the 'too big to fail'
proposal would be a major contribution in reducing the risks
created by the two large banks," the IMF said.

The Swiss Finance Ministry said it would convene a working
group to look into the IMF's call for Switzerland to strengthen
regulation of its financial sector and clarify the respective
mandates of the SNB and financial markets regulator FINMA.

The IMF also called for the authorities to keep a close eye
on the booming Swiss housing market: "The development of lax
lending standards in the mortgage market and increasing interest
rate risk call for pre-emptive measures," it said.
(Editing by Toby Chopra)