SINGAPORE (Reuters) - Billionaire investor George Soros said on Monday the U.S. Federal Reserve might overshoot in its bid to tighten monetary policy, deflating housing prices and tipping the economy into recession in 2007. A collapse in U.S. housing prices could be associated with a dollar decline, scuppering the Fed's attempt to engineer a "soft-landing" for the economy, Soros told an audience at the Singapore Institute of International affairs. Soros -- best known for his famous bet against sterling as Britain was forced to pull its currency out of the European currency grid in 1992 -- said he expected the federal funds rate, now at 4.25 percent, to peak at 4.75 percent. Nevertheless, the Fed could be late in estimating when to stop raising rates, he said, creating a "reasonably significant chance" of a "hard-landing." "If housing continues to cool while rates are slowing then it could turn into a hard landing," Soros said. "That's why I expect a recession to happen in 2007, not 2006." The Fed has raised its key rate at each of its policy meetings since June 2004, but has indicated the tightening cycle is close to peaking. Although economies in Europe and Japan are recovering from slowdowns, they may not be in a position to counterbalance the impact of a U.S. recession, he said. Besides, Japan's economy could slow down if the Chinese economy slows. "Europe is growing relatively well... but a hard landing in the U.S. will be associated with a decline in the dollar which would hurt the European economy," he said. Soros said he believed the U.S. housing bubble, a major factor behind strong U.S. consumption, had reached its peak and was in the process of being deflated. A way to tackle an ensuing global slowdown would be to stoke domestic demand in Asia and other developing regions, he said. He suggested an International Monetary Fund proposal for richer countries to donate their Special Drawing Rights (SDR) to poorer countries would be a way to stimulate that demand. GLOBAL RISKS The 75-year-old investor turned philanthropist, said the world economy faced two other significant risks -- the U.S.-led war on terror and global warming. He argued the war on terror that followed the September 11 attacks on the United States in 2001 and the war in Iraq had turned global opinion against the world's most powerful country. "The biggest blunder was declaring war against terror. Today, most Americans realize that the Bush administration has led us astray," he said. Soros said global warming threatened humankind and should be tackled by penalizing carbon emissions, instead of the current system of rewarding companies that reduce pollution. "Our civilization is at stake," he said. An advocate of freedom of information, Soros noted media power was being concentrated in fewer hands in the United States, Russia and China. "I'm really concerned about China," he said. As long as China's economy is booming, the lack of free discourse may not be a big issue, but once the economy starts to slow down and faces a crisis, free speech or a lack of it could make or break the country, he said. "They should use the current period of prosperity to open up for greater freedom of speech and expression. There is no doubt in my mind that some kind of crisis will emerge." Soros said he saw encouraging signs in terms of creating a more open society in Taiwan, Indonesia and Malaysia. "I see improvement in Malaysia since my friend left," he said, referring to former Prime Minister Mahathir Mohamad. Soros was heavily criticized by Mahathir, who said the investor had bet against Asian currencies during the 1997/98 Asian financial crisis, contributing to the subsequent economic meltdown.