October 29, 2006	Sunday	Shawwal 5, 1427

WASHINGTON, Oct 28: A slumping housing sector helped slow US economic growth in the third quarter to its weakest pace in over three years, leading financial markets to raise bets on interest-rate cuts next year.

Gross domestic product, which measures total economic activity within US borders, expanded at a 1.6 per cent annual rate during the third quarter, the Commerce Department reported on Friday. This was down from 2.6 per cent in the second quarter for the slowest advance since the first quarter of 2003.

The Bush administration insisted the soft GDP data, coming less than two weeks before the November 7 congressional elections, did not signal the economy was spiralling downward but only that it was moving to a slower and steadier growth rate.

"I'm feeling good about making this economic ... transition from an unsustainable rate to a more sustainable rate," Treasury Secretary Henry Paulson said during a relatively rare meeting with print reporters in Treasury's pressroom.

Democrats expressed concern the economy was slowing at a time when workers were already struggling to keep up with inflation, a theme they have pressed on the campaign trail.

Democratic House Leader Nancy Pelosi, in line to become Speaker if Democrats capture the US House of Representatives, said growth in earnings was not keeping up with rising costs of health care, food and energy.

"By these measures, our economy is not nearly as strong as it should be," Pelosi said.

The dollar sank to a one-month low against a basket of major currencies on the signs of softness. The risk that corporate profits might suffer in a slower economy also hurt stocks.

The Dow Jones industrial average lost 73.40 points to end at 12,090.26 while the Nasdaq Composite Index finished down 28.48 points at 2,350.62.

But bond investors took heart at signs that slower growth might ease price pressures and keep interest rates on hold.

Benchmark 10-year US Treasury notes gained 11/32 in price to 101-17/32 for a yield of 4.68 per cent while the 30-year bond was up 20/32 in price at 95-1/32, yielding 4.80 per cent.

Consumers showed no sign that weakening housing prices were dampening their spirits. A survey from the University of Michigan indicated consumers were even more optimistic as the fourth quarter opened than previously thought.

A final October reading of the University of Michigan's consumer sentiment index came in at 93.6, up from a preliminary 92. 3 and September's final reading of 85.4, said sources who saw the subscription-only report.

Economic growth in the third quarter was well below Wall Street forecasts for a 2.2 per cent increase and reflected a range of influences that combined to slow the economy.—Reuters