The economy grew a bit faster than initially thought in the fourth quarter on slightly firmer consumer spending, further calming fears of a sharp slowdown in growth in early 2012.

Gross domestic product expanded at a 3 percent annual rate, the quickest pace since the second quarter of 2010, the Commerce Department said on Wednesday in its second estimate.

The reading, which was up from the 2.8 percent pace the government reported last month and reflected modest upward revisions to almost all components of GDP, added to the recent run of fairly upbeat economic reports.

The tone of the report was further bolstered by upward revisions to income data, which should help support consumer spending in the face of rising gasoline prices.

Growth is still on the right path, but we are not going to see any acceleration. Income was revised up so it removed one of headwinds to growth in the beginning of the year, said Yelena Shulyatyeva, an economist at BNP Paribas in New York.

Other data on Wednesday showed the continued resilience in manufacturing, with the Institute for Supply Management-Chicago's business barometer in February rising to 64, a 10-month high, from 60.2 in January.

The upbeat reports helped to lift U.S. shares, while prices for Treasury debt weakened modestly. The dollar rose against a basket of currencies.


Graphic on GDP data:


So far this year data ranging from employment to manufacturing have shown underlying strength in the economy, reducing the need for the Federal Reserve to ease monetary policy further by launching a third round of asset purchases or quantitative easing.

But Fed Chairman Ben Bernanke said on Wednesday growth would have to accelerate to quickly bring down an 8.3 percent unemployment rate. His remarks suggested the U.S. central bank was leaning towards more bond purchases.


Recent gains in labor market are helping the economy.

Consumer spending, which accounts for about 70 percent of U.S. economic activity, was raised to a 2.1 percent rate of increase from 2 percent. At the same time, growth of real disposable income was revised up to a 1.4 percent rate from 0.8 percent.

Consumers are spending from rising income rather than digging into their savings to spend, said Shulyatyeva.

Business investment in capital goods was lifted to a 2.8 percent pace from 1.7 percent, but still weak compared to the recent trend. Outlays on home building were firmer than previously estimated, while investment on nonresidential structures was modestly weak.

While a rebuilding of inventories added a hefty 1.88 percentage points to GDP in the last quarter, the increase was revised down to $54.3 billion from $56.0 billion.

The large boost to GDP growth from stock building in the fourth quarter is unlikely to be repeated in first quarter but the household accounts provide a much more encouraging backdrop for consumer spending, said Peter Newland, a senior economist at Barclays Capital.

Excluding inventories, the economy grew at a 1.1 percent rate, rather than the 0.8 percent initially reported. That was still a sharp step-down from the prior period's 3.2 percent pace.

The report also showed exports were not as strong as previously thought, but imports are also not growing strongly, leaving a smaller trade gap that was less of a drag on growth.

It also showed still moderate inflation pressures, though a

price index for personal spending rose at a 1.2 percent rate instead of 0.7 percent.

A core measure that strips out food and energy costs rose at a 1.3 percent rate instead of 1.1 percent. The Fed would prefer to see this measure nearer its 2 percent inflation target.

(Additional reporting by Richard Leong in New York; Editing by Neil Stempleman)