US growth sinks lower

The US economy grew at a rate of 1.3% in the first three months of 2001, significantly lower than last month's government forecast of 2%.

The growth was also slower than the expectations of economists who had forecast a downward revision to 1.5%.

The news came the day after chairman of the Federal Reserve Alan Greenspan signalled that the US was still facing the threat of recession, and that there were "considerable uncertainties" ahead.

It was the first major economic report released this week, and traders on Wall Street began to sell shares down as soon as the news was released.

More interest rate cuts?

GDP - the broadest measure of economic activity - stood at just 1% during the last three months of 2000.

But the government raised hopes of a rebound just one month ago, by predicting that the economy would expand at a rate of 2% in 2001.

The latest data now squashes these hopes of a quick recovery.

And it also raises expectations that the Federal Reserve will cut interest rates again.

The Fed has already cut rates - which now stand at 4% - five times this year in order to inject more strength into the economy.

The Commerce Department attributed the weak GDP to companies cutting back on their inventories at the fastest pace in 18 years.

Consumer sentiment rises

Some more encouraging news came when data from the University of Michigan showed a slight rise in consumer sentiment in May.

The index, which has been sliding since late last year, rose to 92 in May compared to 88.4 in April.

The news may help offset some of the losses on the stock markets.

At 1035 in New York (1435 GMT), the Dow Jones index had fallen 90 points to 11,033, while the Nasdaq was 32 points lower at 2,250.