Mumbai: The US economy grew at the slowest pace, at 1.3 per cent, in four years in the January-March 2007 quarter, following a slump in housing and a larger trade deficit and only consumer spending to keep the economic expansion going.

The 1.3 per cent annual rate of growth follows a 2.5 per cent fourth-quarter growth, the commerce department said.

This comes amidst fears of accelerating inflation at the Federal Reserve, which probably prevents the US monetary authorities from cutting interest rates to spur growth, economists said

This keeps the expansion in the hands of consumers whose confidence has been buffeted by higher fuel prices and the decline in housing.

The dollar fell to a record low against the euro, extending a slide that's being driven by rising interest rates in Europe and faster economic growth than in America.

The greenback also lost against Asian currencies, especially against the Indian rupee, hitting a nine-year low against the rupee.

Treasury notes rallied after the GDP report was released but later surrendered some of their gains. The yield on the benchmark 10-year note was unchanged at 4.69 per cent at 4:51 p.m. in New York.

The report, the government's first estimate of the quarter's gross domestic product, will be revised in each of the next two months.

The Fed chairman Ben S Bernanke has indicated a preferred inflation ceiling of 1-2 per cent, which is tied to consumer spending except food and energy costs against the actual rise of 2.2 per cent, up from 1.8 per cent in fourth-quarter.

Consumer spending, which accounts for about 70 per cent of the economy, rose at an annual rate of 3.8 per cent last quarter, compared with a 4.2 per cent pace in the previous three months.

Quarterly consumer-spending gains averaged 3.7 per cent during the past decade.

Home construction fell at an annual rate of 17 per cent last quarter, after contracting by 19.8 per cent in the previous three months.

Fixed business investments, which include spending on commercial construction as well as equipment and software, rose at 2 per cent, after falling at a 3.1 per cent in October-December. Spending on new equipment and software increased 1.9 per cent.

Inventories with companies grew at an annual rate of $14.8 billion last quarter after a $22.4 billion fourth-quarter gain.

US trade deficit widened to an annual rate of $597.8 billion from $582.6 billion in the fourth quarter, causing a 0.52 percentage point drop in the GDP.

Central bankers have said they expect the economy will improve in the second half of the year as the effects of the housing slowdown dissipate and businesses regain the confidence to resume investing.