Clinton hails surge of 4.2% in US growth

There was instant celebration at the White House as fresh indicators released yesterday showed a stronger-than-expected 4.2 per cent economic growth rate in the US in the second quarter, the fastest pace in two years.

The figures were welcome news for President Bill Clinton in election year. "This is good news for America," Mr Clinton declared at a Washington press conference.

They compare with the relatively feeble 2 per cent rate of growth in GDP in the first quarter and the positively anaemic 0.3 per cent performance in the last three months of 1995.

Stephen Roach, chief economist at Morgan Stanley, commented: "The big question is whether the economy is growing too fast to keep a lid on inflation and whether it forces the hand of the Federal Reserve."

But any worries in the markets about a return of inflationary pressures, which would trigger higher interest rates, were tempered in the meantime by the monthly survey from the National Association of Purchasing Management showing an unexpected slowdown in manufacturing growth in July.

The NAPM report encouraged the view that the economy remains under control and that the Fed would therefore hold back from raising interest rates after its policy meeting on 20 August. In morning trading, the Dow Jones Industrial Average was up by almost 50 points.

Traders will look closely for further clues in July employment figures due to be released today.

Previous months' jobs surges have sent bond and share prices diving.