The US economy slowed more sharply in the second quarter than was first thought, as oil prices rose and the trade gap swelled, the government said yesterday in a report that confirmed momentum faltered in the spring.

US gross domestic product - which measures total output within the nation's borders - expanded at a 2.8 per cent annual rate in the second quarter to $10.8 trillion (€9 trillion), down from the 3.0 per cent pace estimated last month by the commerce department.

The downward revision marked a sharp slowdown from the first quarter's 4.5 per cent expansion, but was widely expected by Wall Street and markets had little reaction.

"Rapidly fading fiscal stimulus, a collapse in mortgage refinancing and sharply higher energy costs reduced households' purchasing power," said Mr Steven Wood, an economist at Insight Economics.

While there are signs the economy picked up strength in the summer, analysts said growth is unlikely to bounce back quickly enough in the third quarter to spur job creation.

"Overall economic growth should accelerate but will likely remain below the 4 per cent pace needed to reduce unemployment," Mr Wood said.

The uneven expansion since the 2001 recession and poor job growth in recent months has sparked Democratic criticism of President George W. Bush, and the economy has been a key issue in the campaign for the November election.

A separate report showed US consumer sentiment picked up more than expected in late August as oil prices eased from record highs and security fears abated. The University of Michigan's index of consumer sentiment rose to 95.9 in late August from 94.0 earlier in the month, but it was down slightly from 96.7 at the end of July, according to market sources.

Confidence took a knock early in the month as oil prices spiked to new highs and consumers expressed concern about the prospects for the US economy.

But with crude oil prices heading lower, analysts had expected some of this pessimism to evaporate, especially as consumers were expressing more confidence in the improvement of the labour market.

The commerce department said after-tax profits fell 1.2 per cent in the April-June period compared with the first quarter. That was the weakest performance since the first quarter of 2003, when corporate profits tumbled 4.5 percent. - (Reuters)