US economy 'growing but sluggish'

The Fed said that its Beige Book report - which gives a snapshot of the economy in 12 districts - showed spending was subdued, particularly in car sales.

The housing market was weak in all the areas surveyed, it added, while commercial property activity was mixed.

The report adds to expectations that US interest rates will be trimmed further from the current 4.25% level.

Fed policymakers meet at the end of the month to make their decision on rates, with some analysts saying a half percentage point cut may be made. Plunging retail sales and a large rise in unemployment have stoked worries that the US is heading for its first recession since 2001.

'Cautious' outlook

The report, which looked at the period between mid-November and the end of December, said the economy grew "but at a slower pace".

Looking ahead to 2008, it said that outlook for the retail sector was "cautious".

And it added that despite home prices holding steady in some areas, the overall expectation was that housing markets would remain weak during the first part of 2008.

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