US economy finds momentum in Q2; QE3 tapering closer

GDP grew at a 1.7% annual rate, the US Commerce Department said on Wednesday, stepping up from the first-quarter's downwardly revised 1.1% expansion pace

US economic growth unexpectedly accelerated in the second quarter, laying a firmer foundation for the rest of the year that could bring the Federal Reserve a step closer to cutting back its monetary stimulus.

Gross domestic product grew at a 1.7 per cent annual rate, the US Commerce Department said on Wednesday, stepping up from the first-quarter's downwardly revised 1.1 per cent expansion pace.

Economists polled by Reuters had forecast the economy growing at a 1.0 per cent pace after a previously reported 1.8 per cent advance in the first three months of the year.

A separate report showed private employers maintained a higher pace of hiring in July, adding to the brightening economic picture.

"We have an upside surprise in the GDP which speaks volumes for the job recovery that we're putting together. The recovery in the economy is starting to take root," said Andre Bakhos, director of market analytics at Lek Securities in New York.

US Treasury debt prices fell on the data, while the dollar rallied against the yen and advanced against the euro. US stock index futures were little changed.

A rebound in business spending, export growth and a sharp moderation in the pace of decline in government outlays boosted economic growth in the April-June period, offsetting a slowdown in consumer spending and a steady rate of inventory accumulation. Still, the report marked a third straight quarter of GDP growth below two per cent, a pace that normally would be too soft to bring down unemployment. But growth was poised to gain even more momentum in the second half of the year as the fiscal burden brought on by belt-tightening in Washington eases.

Economic growth was relatively stronger between 2009 and 2012 than previously reported. In fact, the economy grew 2.8 per cent last year, 0.6 percentage point faster than the government had previously estimated.