U.S. economy returns to growth

By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. economy grew in the third quarter for the first time in more than a year as government stimulus helped lift consumer spending and home building, fuelling an unexpectedly strong advance.

Signalling the end of the worst recession in 70 years, the Commerce Department on Thursday said the economy expanded at an annual rate of 3.5 percent in the July-September period, snapping four down quarters with its fastest growth pace since the third quarter of 2007 and exceeding forecasts for a 3.3 percent rate.

The report helped lift global stock markets which were also boosted by improving third-quarter corporate earnings, including higher-than-expected profits from household goods makers Procter & Gamble and Colgate-Palmolive.

On Wall Street, the broad S&P 500 index of U.S. stocks had gained more than 1 percent in morning trade after four days of falls caused by investor concerns over the outlook for economic growth.

Prices for U.S. government debt and the U.S. dollar fell as traders exited safe havens.

"The economy has emerged with gusto from the deepest recession since World War Two," said Harm Bandholz, economist at UniCredit Markets and Investment Banking in New York. "The short-term prospects for the economy remain good."

Growth was generally broad-based with solid gains in consumer spending, exports and home construction.

But, worryingly for economists, it was also driven by emergency government programs like the popular "cash for clunkers" incentive for new auto purchases and an $8,000 (4,800 pounds) tax credit for first-time home buyers.