The US economy grew at a tepid 2 per cent annual rate in the third quarter, slowed by the sharpest slump in housing in more than 15 years, while mid-Atlantic business activity stumbled in December, data showed yesterday.

The growth rate for gross domestic product (GDP), the broadest measure of economic activity within US borders, was revised down in the July-September period from the 2.2 per cent estimated a month ago, the US commerce department said.

That was a slowdown from the second quarter's 2.6 per cent rate of GDP increase.

A midday report from the Philadelphia Federal Reserve Bank offered signs of persistent economic softening. Its business activity index for the mid-Atlantic region fell to -4.3 per cent in December, from 5.1 in November - the third month in the past four it has been negative.

"At the end of the year, the economy is weak and a quick turnaround is not clear," said Robert Brusca, chief economist for New York-based Fact and Opinion Economics. "It's not uniformly bad, but it's still pretty bad."

The latest third-quarter GDP figure is based on updated information and is the government's final gauge of performance in the period. Wall Street economists had forecast it would come in unrevised from last month's reading, but the department said consumer spending on services was weaker than it previously estimated.

Stock prices weakened after the Philadelphia report was published and the dollar dipped against other currencies on concerns about possible economic slowing in 2007. Bonds rose on hopes the report might boost chances of lower interest rates, which benefit debt investors, to stimulate the economy.

The GDP report said so-called core prices, which exclude food and energy items, slowed to 2.2 per cent in the third quarter from 2.7 per cent in the second quarter. Analysts said the slower quarterly rise was reassuring.

"The worst of inflation is behind us," said Christopher Low, chief economist for FTN Financial in New York. "It's not only energy, because core inflation has quieted down too. There's nothing to worry about on the inflation front."

But on a year-on-year basis, third-quarter core prices rose 2.4 per cent - the strongest since a matching 2.4 per cent in the second quarter of 1995 - after gaining 2.2 per cent year-on-year in the second quarter. Federal Reserve policymakers, who have kept interest rates steady since mid-year, say they continue to remain vigilant against any possibility inflation does not recede.

A report from the New York-based Conference Board, a private research group, underlined the uncertainty in the economic outlook. Its US index of leading economic indicators rose 0.1 per cent to 138.2 in November, the same as in October but down from a 0.4 per cent pick-up in September, pointing to a likely slow start next year but not necessarily a downturn.

Spending on new-home building plunged 18.7 per cent, steeper than the 18 per cent drop estimated a month ago. It was the biggest drop since a 21.7 per cent fall in the first quarter of 1991 and was the fourth consecutive quarter in which building activity declined.