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Economic growth exceeds low expectations

The economy grew at a faster pace this spring than previously thought, but was at its weakest level in more than a year, providing ammunition to both candidates in the final weeks of the presidential race.

The 3.3 percent annual growth rate of gross domestic product in the April-June period was stronger than the 2.8 percent pace estimated last month, the Commerce Department said Wednesday. GDP is the country's output of goods and services.

Still, the improvement was significantly lower than the first quarter's 4.5 percent annual rate.

The second-quarter boost to the nearly $11.7-trillion economy came from expanded business inventories and investments, an increase in imports and a drop in exports.

"The economy is doing better than many anticipated," said Sung Won Sohn, economist at Wells Fargo & Co. "And the better news is that economic growth will accelerate."

The report sent stocks higher, with the Dow Jones closing up nearly 59 points and the Nasdaq up 24 points.

Also Wednesday, the International Monetary Fund said the U.S. economy should grow by a solid 4.3 percent this year. That prediction marked a slight downward revision from the IMF's spring forecast that growth would be an even faster 4.6 percent this year.

The government's first estimate of third-quarter GDP will be released Oct. 29, four days before the election.

That could provide more good news for President Bush in a campaign focused heavily on the economy. Democrat John Kerry has criticized Bush's record on job creation, rising costs for energy and health care and record budget deficits.

Federal Reserve Chairman Alan Greenspan has called the early summer slowdown a "soft patch" and predicted the economy will rebound. The Fed raised interest rates last week for the third time since June. But some private economists worry his forecast might be overly optimistic given a renewed surge in energy costs.

The price of crude oil in trading this week has topped the $50-per-barrel mark, a record in dollar terms. Analysts see surging oil prices as a major threat to the expansion because the more consumers spend on energy, the less they have to spend on other goods.

Inflation showed a slight increase in the spring. A gauge that is tied to GDP rose at an annual rate of 3.2 percent, compared with 2.7 percent in the first quarter.

"Slower growth is most visible at shopping malls and in new car showrooms," said Peter Morici, an economist and international business professor at the University of Maryland.

Consumer spending, which accounts for two-thirds of economic activity, came to a near standstill in the spring. Spending grew at an annual rate of 1.6 percent, the slowest pace in three years. The government will release new figures today.

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