U.S. third quarter growth data was very encouraging and showed the economy has stabilized but still faces difficulties, Treasury Secretary Timothy Geithner said on Thursday.

Preliminary U.S. gross domestic product data indicated the economy is in an early phase of recovery risks of a credit crunch remain and the government must reinforce growth, Geithner told a seminar at the Economic Club of Chicago.

The (GDP) number today was really encouraging....it was broad and strong and it wasn't just cash-for-clunkers and it wasn't just economic stimulus...but it's important to remember that it's very early, said Geithner.

The U.S. economy grew in the third quarter for the first time in over a year as government stimulus helped lift consumer spending and home building, fueling an unexpectedly strong advance, the government data showed on Thursday.

The economy is stabilized. You can see signs of growth here and around the world, he said.

NO BORROW AND SPEND

To avoid a credit crunch, the financial system must continue to receive adequate supplies of capital to meet its responsibility of providing loans to businesses and consumers, Geithner said.

You can't have growth without credit, he said.

He expressed confidence problems in the U.S. commercial real-estate market would not drag the economy down, although there was uncertainty surrounding the sector.

I think that's a problem the economy can manage through, he said, but noted it's a difficult thing for policy to address.

Geithner said recovery will have to be led by the private sector and exports, and no one was considering tax hikes.

We are not going to be able to borrow and spend our way out of this, he said.

Geithner said long-term budget deficits at current levels were unsustainable but the government had to get the economy going again before it could bring them down.

The Obama administration reported a record U.S. budget deficit for the fiscal year ended September of $1.4 trillion, or nearly 11 pct of gdp. That was the biggest fiscal shortfall since World War 2.

The White House has forecast deficits of more than $1 trillion through fiscal 2011.

Commenting on the Obama administration's financial regulation overhaul, Geithner said it enjoyed broad support and was on track to achieve major reforms despite resistance from some politicians.

Timothy geithner