President Bush is counting on a strong performance

US gross domestic product (GDP) was up 4.2% year on year in the first three months of 2004, somewhat shy of the 5% forecast by many economists.

The growth figure, barely higher than the previous quarter, has calmed fears of an interest-rate rise next week, and is seen as positive for investors.

Meanwhile, Treasury Secretary John Snow said the economy is getting stronger.

US interest rates are currently at a 46-year low of 1%, and many argue a rise is inevitable sooner or later, especially if economic recovery does gather pace.

Narrow base

The growth figure should be robust enough to calm fears of any serious slowdown in that recovery.

In this election year, the state of the economy - and in particular its ability to replace jobs lost in the recent slump - has taken centre-stage.

Speaking at the annual conference of the Export-Import Bank in Washington on Thursday, US Treasury Secretary John Snow was in bullish mood: "Our economy is running on all four cylinders."

He credited the president's tax cuts with the improvement, adding: "Our upward trend is strong."

The economy is expanding at a nice steady pace Edgar Peters, Panagora Asset Management

Last month's employment figures showed a substantial jobs gain for the first time in months, and President George W Bush is hoping that sustained growth will spark further corporate hiring.

And Mr Snow said the economy had created 759,000 jobs in the past seven months, 308,000 of those in March alone.

He said: "I anticipate that this economy will be creating a lot more jobs in the coming months."

Although the US has recorded some exceptionally strong growth figures in the past few months, economists worry that the resurgence is based on consumer spending, rather than any broader revival in capital investment and company expansion.

These latest figures contained no indication that corporate activity is increasing particularly fast; the main jump was in government spending - defence expenditure, for example, was up 15% year on year.

Ups and downs

The GDP reports reinforces the belief that interest rates will not be raised when Federal Reserve policy-makers meet next Tuesday.

"Fears that the economy is overheating so that the Fed has to raise rates are pretty overdone," said Edgar Peters of Panagora Asset Management.

"The economy's expanding at a nice steady pace."

But one element has caused concern: the so-called PCE price index, which excludes food and energy, and which Fed Chairman Alan Greenspan is known to monitor, almost doubled in pace.

This has raised modest fears of a reignition of inflation, something that would cause alarm and rate rises at the Fed.

Cary Leahy, an economist at Deutsche Bank, said inflation would remain under control so long as it did not outpace improvements in productivity.