Surprise jump in US growth

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The Independent Online

Stock markets aroundthe world rallied yesterday on news that growth in the United States during the second quarter, already showing a relatively strong reading, had been revised upwards. Strong exports, helped by the dollar's weakness earlier in the year plus consumerspending buoyed by $80bn in tax cuts, seem to have had a more benign effect than previously thought.

Thus the American economy is now thought to have enjoyed a boom-style annualised rate of growth of 3.3 per cent from April to June, up from the previous estimate of 1.9 per cent, also annualised.

The revised GDP figure was much stronger than the 2.7 per cent gain analysts had expected. It added to relatively good news on the real-estate market this week, and helped to fuel hopes that America may escape the worst ravages of a slump.

US stocks ended up 212.67 or 1.85 per cent at 11715.18, despite evidence of a squeeze on profits in the official data.

A growth rate in the second quarter of 3.3 per cent compares with the 0.9 per cent annualised rate recorded in the firstquarter and the 0.2 per centcontraction in the final three months of 2007, the weakestsince 2001.

The Federal Reserve has held benchmark interest rates at 2 per cent since April to boost America's faltering economy, but at the expense of inflation of 5 per cent, a 17-year high.

Despite the bullish news today, most economists still expect the US economy to slow sharply in the second half of this year.