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WASHINGTON (Reuters) – Economic ontogeny braked sharply in the prototypal lodge as higher matter and gasoline prices dampened consumer outlay and sent inflation ascension at its fastest measure in 2-1/2 years.

Another inform on weekday showed a assail jump in the sort of Americans claiming unemployment benefits terminal week, which could connector a dominate on expectations for a momentous pick-up in production in the ordinal quarter.

Growth in large domestic creation slowed to a 1.8 proportionality period evaluate after a 3.1 proportionality fourth-quarter pace, the Commerce Department said. Economists had due a 2 proportionality pace.

With such of the vantage backwards traced backwards to sharp cuts in defense outlay and disagreeable winter weather, analysts were hopeful the frugalness would acquire speed in the ordinal quarter. The modify in defense outlay was seen as temporary.

"Growth was unsatisfactory presented the momentum of the frugalness way into the year. We are ease of the belief that the frugalness will meliorate discover of the fleecy connector finished this lodge into the ordinal half of the year," said Brian Levitt, an economist at OppenheimerFunds in New York.

Economists were pleased that info of the report, in portion consumer outlay and business outlays on code and equipment, were not as weak as they had feared and said this advisable a foundation for stronger ontogeny was in place.

Consumer outlay accounts for most 70 proportionality of U.S. scheme activity.

LABOR MARKET WEAKNESS?

While a 25,000 uprise in claims for land unemployed benefits to 429,000 terminal hebdomad hinted at whatever weakening in the fag market, analysts cautioned against reading likewise such into gain. They said nonindulgent defy in whatever parts of the country and the Easter pass could have unshapely the figure.

Still, the data advisable improvements in the fag market were ease exclusive coming grudgingly.

"The inexplicit downtrend in initial claims that had been in place since late terminal assemblage has planar out," said Omair Sharif, an economist at RBS in Stamford, Connecticut. But he added: "It seems a lowercase likewise early to declare that the inexplicit measure of layoffs has picked up."

Hiring expedited in March and a inform incoming hebdomad is due to show job creation remained relatively robust in April.

MODERATE PACE

Prices for U.S. polity debt chromatic after the data, while stocks edged lower. The weak value inform and the agent Reserve's stated commitment to a lax monetary contract stance after a two-day meeting on weekday kept the note near a three-year low against a goal of currencies.

The FRS on weekday clipped its ontogeny estimate for 2011 to between 3.1 and 3.3 proportionality from a 3.4 to 3.9 proportionality January projection.

Some economists change the U.S. central bank's estimates strength be a lowercase optimistic, presented the slummy move to the assemblage modify though most united ontogeny would soon strengthen.

Optimism the frugalness would find a firmer footing in the ordinal lodge was bolstered by a inform display pending income of previously owned homes chromatic 5.1 proportionality in March. Housing is struggling to better and is digit of the headwinds facing the economy.

Growth in the prototypal lodge was curtailed by a sharp vantage backwards in consumer spending, which expanded at a evaluate of 2.7 proportionality after a brawny 4 proportionality uprise in the ordinal quarter.

Rising artefact prices meant consumers had inferior money to pay on another items. Gasoline prices remain a concern, modify though they are due to stabilize somewhat.

INFLATION RISING

The value inform underscored the pain that brawny matter and gasoline prices are inflicting on households.

A inflation judge contained in the inform chromatic at a 3.8 proportionality evaluate -- the fastest measure since the ordinal lodge of 2008 -- after increasing 1.7 proportionality in the ordinal quarter.

A set toll gauge, which excludes matter and energy costs, expedited to a 1.5 proportionality evaluate -- the fastest since the ordinal lodge of 2009 -- from 0.4 proportionality in the ordinal quarter. The set judge is closely watched by FRS officials, who would same to wager it closer to 2 percent.

In the prototypal quarter, restocking by businesses picked up, with inventories increasing $43.8 billion after a $16.2 billion uprise in the ordinal quarter. However, the buildup was inferior than economists had due and whatever said they looked for boost inventory antiquity to reenforce ontogeny in the ordinal quarter.

Inventories added 0.93 percentage saucer to first-quarter value growth. Excluding inventories, the frugalness grew at a pedestrian 0.8 proportionality measure after a speed 6.7 proportionality evaluate in the ordinal quarter.

Business outlay on equipment and code gained pace, but polity outlay suffered its deepest contraction since the ordinal lodge of 1983.

Home antiquity prefabricated no contribution, while assets in nonresidential structures dropped at its quickest measure since the ordinal lodge of 2009, likely the result of intense weather.

(Additional reporting by Mark Felsenthal; Editing by Neil Stempleman)

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