Steady pace for US economic recovery

Economists said they expected today's reading of gross domestic product to show the world's biggest economy picking up speed albeit short of the pace needed to bring down unemployment significantly.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in December, rose 2 per cent to 93.7. The increase, which was above economists' expectations for a 1.0 per cent gain, pointed to another rise in sales of previously owned homes this month.

A separate report from the Commerce Department showed orders for a range of domestically manufactured goods gained 0.5 per cent last month. But a nearly 100 per cent drop in civilian aircraft pulled overall orders down 2.5 per cent. Economists shrugged off a surprise jump in new claims for unemployment benefit as a result of bad weather rather than a sudden setback for the labour market.

"The underlying data tells me the economy is expanding but it's not expanding at any kind of pace that's going to cause the Fed to sit up and say 'gee, maybe we have gone too far'," said Steve Blitz, senior economist at ITG Investment Research in New York.

Fed officials yesterday acknowledged the improving economic outlook but said the pace of the recovery remained "insufficient to bring about a significant improvement in labour market conditions".

The US central bank reiterated its commitment to buy an extra $600bn of government debt through the middle of 2011 to keep interest rates low and help the economy.

US stock indexes held near 29-month highs as companies such as Caterpillar reported strong earnings.