Imports stifle 2nd-quarter growth

By Lucia Mutikani

WASHINGTON (Reuters) - The economic recovery was weaker than originally estimated in the second quarter and analysts have now revised forecasts for third quarter growth down also.

Gross domestic product growth, the measure of total goods and services output within U.S. borders, was revised down to only 1.6 percent, from 2.4 percent, the Commerce Department said. The economy grew at a 3.7 percent pace in the first quarter of 2010.

Many economists had forecast an even bigger downward revision to only 1.4 pct growth, but most still do not believe the economy will slide back into recession and say the most likely prospect is for continued slow expansion.

"The outlook continues to be one of modest growth rather than double dip. The question remains whether subpar growth that fails to bring down the unemployment rate is a high enough bar for further Fed policy action," said Julia Coronado, an economist at BNP Paribas in New York.

Second quarter growth was dampened by the largest increase in imports in 26 years, but robust business investment and a slight increase in consumer spending partially cushioned the blow.

Federal Reserve Chairman Ben Bernanke told central bankers at their annual conference in Jackson Hole, Wyoming on Friday that the recovery had weakened more than expected and reiterated the U.S. central bank was ready to take further steps if needed to spur economic growth.

"The committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly," he said.

The better-than-expected second quarter growth figure and Bernanke's commitment to aid the economy helped U.S. stocks to post their biggest gains in nearly four weeks. But the U.S. Treasury debt market suffered its largest sell-off in three months after recent rally. The U.S. dollar ended slightly weaker against most major currencies.