The US economy lost momentum in the second quarter of this year, with growth sharply lower than expected, according to data from the United States department of commerce, which also showed that last year's recession in the US was much worse than previously thought, with the economy shrinking for three quarters rather than one, writes Conor O'Clery.

The slowdown in the second quarter of 2002 increased fears of a double-dip recession brought about by a collapse in confidence in equity markets and a fall in consumer spending.

However, investment in new equipment and software rose for the first time in two years, raising hopes of a capital-spending turnaround.

Gross domestic product in the April to June period grew at an annual rate of just 1.1 per cent compared to 5 per cent revised growth in the first quarter, the department of commerce said. It was the lowest growth rate since the third quarter of 2001.

Economists had predicted a 2.2 per cent growth in GDP, the total value of goods and services produced in the United States.

The new figures indicated that the economy "is more sluggish than we thought", according to Ms Carol Stone, deputy chief economist at Nomura Securities International.

"The recovery that started at the turn of the year hasn't been sustained with any great force," she added.

President Bush and senior members of the Administration have insisted in recent weeks that the US economy is fundamentally sound.

"The president does still believe that there's strength in the underlying indicators in the economy," White House spokesman Mr Ari Fleischer said of the latest figures. "We do support additional growth continuing and growing later into the year and into the future."

Using more complete data, the department of commerce calculated that the US economy was in a worse state last year than previously thought. For the whole of 2001, GDP grew by only 0.3 per cent, and not the 1.2 per cent calculated by the department.