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U.S. economy expands at fastest pace in six years

WASHINGTON - The U.S. economy expanded in the fourth quarter at the fastest pace in six years as factories cranked up assembly lines, indicating the recovery may be strong enough to be weaned from government support.

The 5.7 percent increase in gross domestic product reported by the Commerce Department Friday exceeded the 4.8 percent median forecast of economists surveyed by Bloomberg News. Separate reports showed consumer sentiment and a barometer of business activity rose more than forecast in January.

Rising investment in equipment and software is boosting sales at companies including Intel and may help bring the jobless rate down from close to a 26-year high as employers add staff to meet demand.

"We are getting on to something that is pretty sustainable," said Bruce Kasman, chief economist at JPMorgan Chase in New York, who correctly forecast the gain in GDP.

Consumer spending, which comprises about 70 percent of the economy, rose at a 2 percent pace following a 2.8 percent increase in the previous three months. Economists projected a 1.8 percent gain, according to the survey median. Efforts to rebuild depleted inventories contributed 3.4 percentage points to GDP, the most in two decades.

For all of 2009, the economy shrank 2.4 percent, the worst single-year performance since 1946. Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.

Purchases of equipment and software increased at a 13 percent pace in the fourth quarter, the most since 2006, Friday's Commerce Department report showed. The gain helped offset a 15 percent drop in commercial construction, leaving total business investment up 2.9 percent over the past three months.

A Labor Department report Friday showed wages and benefits rose 0.5 percent in the fourth quarter, capping their smallest annual increase on record.

A gauge of consumer confidence climbed to the highest level in two years.

The Reuters/University of Michigan final index of consumer sentiment rose to 74.4 from December's 72.5.

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