WASHINGTON (Reuters) — The US economy grew at a tepid two percent annual rate in the third quarter, slowed by the sharpest slump in housing in more than 15 years, while mid-Atlantic business activity stumbled in December, data showed yesterday.The growth rate for gross domestic product, the broadest measure of economic activity within US borders, was revised down in the July-September period from the 2.2 percent estimated a month ago, the Commerce Department said.

That was a slowdown from the second quarter’s 2.6 percent rate of GDP increase.

A midday report from the Philadelphia Federal Reserve Bank offered signs of persistent economic softening. Its business activity index for the mid-Atlantic region fell to -4.3 percent in December from 5.1 in November — the third month in the past four it has been negative.

“At the end of the year, the economy is weak and a quick turnaround is not clear,” said Robert Brusca, chief economist for New York-based Fact and Opinion Economics. “It’s not uniformly bad, but it’s still pretty bad.”

The latest third-quarter GDP figure is based on updated information and is the government’s final gauge of performance in the period.

Wall Street economists had forecast it would come in unrevised from last month’s reading, but the department said consumer spending on services was weaker than it previously estimated.)

Stock prices weakened after the Philadelphia Fed report was published, and the dollar dipped against other major currencies on concerns about possible economic slowing in 2007. Bonds rose on hope the report might boost chances of lower interest rates, which benefit debt investors, to stimulate the economy.

The GDP report said so-called core prices, which exclude food and energy items, slowed to 2.2 percent in the third quarter from 2.7 percent in the second quarter.

Analysts said the slower quarterly rise in prices was reassuring.

“The worst of inflation is behind us,” said Christopher Low, chief economist for FTN Financial in New York.

“It’s not only energy because core inflation has quieted down too. There’s nothing to worry about on the inflation front,” he added.

But on a year-over-year basis, third-quarter core prices rose 2.4 percent — the strongest since a matching 2.4 percent in the second quarter of 1995 — after gaining 2.2 percent year-over-year in the second quarter.

Federal Reserve policy-makers, who have kept interest rates steady since mid-year, say they continue to remain vigilant against any possibility inflation does not recede.

A midmorning report from the New York-based Conference Board, a private research group, underlined the uncertainty in the economic outlook.

Its US Index of Leading Economic Indicators rose 0.1 percent to 138.2 in November, the same as in October but down from a 0.4 percent pick-up in September, pointing to a likely slow start next year but not necessarily a downturn.

“At this stage, something else must develop, either to give the economy a new jolt of energy to speed it up, or a new snag that could force the economy to slow more,” board economist Ken Goldstein said in a statement.

Separately, the Labour Department said 9,000 more workers applied for first-time jobless benefits last week — a total 315,000 and roughly the number that analysts had forecast.

Spending on new-home building plunged 18.7 percent, steeper than the 18 percent drop estimated a month ago. It was the biggest drop since a 21.7 percent fall in the first quarter of 1991 and was the fourth consecutive quarter in which building activity declined.

Some analysts suggested weak home building might become less of a drag on growth since the sector’s prolonged slump should have wrung out some of the weakness in the sector.

“We’re not going to see a dramatic rebound but we’re not going to see further drops from here because it’s so low,” said Andy Busch, senior currency strategist for BMO Capital markets in Chicago.

The GDP report did not change the overall picture of a gradually slowing economy, hampered by a decline in housing but with business investment continuing at a solid pace. After growing in the first quarter at a sturdy 5.6 percent annual rate, GDP advanced 2.6 percent in the second quarter and two percent in the third quarter.

A monthly index of national activity compiled by the Chicago Federal Reserve Bank, also issued yesterday, showed a slight improvement in November but still pointed toward growth that is likely to stay below historical trends. The GDP report showed business spending grew at a 10 percent rate in the third quarter, the same rate estimated a month ago, and more than twice the 4.4 percent rate posted in the second quarter.

Corporate profits after taxes increased by a revised 4.2 percent rate in the third quarter, down modestly from last month’s estimated 4.6 percent, and a strong gain from the second quarter’s meagre 0.3 percent rise in profits.