US gross domestic product surged at an unexpectedly strong 7.2 per cent annual rate in the July-September period, a Commerce Department report showed.

The sizzling pace of growth -- reflecting not just a splurge by shoppers but a big step up in business spending -- was the briskest since the first quarter of 1984 and more than double the second quarter's 3.3 per cent advance.

"This is a great report for the economy," said Cary Leahey, senior U.S. economist at Deutsche Bank Securities. "Not only was the headline strong, but the mix was good and it implied a good fourth quarter."

Three other reports on Thursday also suggested a firmer recovery was taking root -- new claims for jobless benefits and a help-wanted index suggested some stability in the labor market, while companies spent more on wages and benefits.

The jump in GDP handily beat forecasts on Wall Street, where economists had looked for a gain closer to 6 per cent.

Stocks rallied briefly on the GDP data but closed little changed on the day. Bond prices fell as investors guessed the report brought nearer the day the Federal Reserve would raise interest rates from bargain-basement levels.

Consumer spending shot up at a rapid 6.6 per cent pace as lower tax withholding on paychecks and child tax credit checks put more cash in shoppers' hands. It was the biggest gain since early 1988 and accounted for nearly two-thirds of GDP growth.

Economists expect growth to moderate from its recent break-neck pace as the boost from tax cuts fade, although most expect it to settle near a still-solid 4 per cent rate in the current quarter and hold around that rate next year.

Congress passed a $350 billion White House tax plan in the spring that lowered tax-withholding rates and pumped out about $13.7 billion dollars in child tax rebates in July and August.

"The tax relief we passed is working," President Bush told workers at the Central Aluminum Company in Columbus, Ohio. "We left more money in the hands of the American people, and the American people are moving this economy forward."

Democrats countered that the step up in growth had failed to create jobs. Despite the quickened pace of recovery, 41,000 jobs were lost in the third quarter, bringing the total number of jobs shed since Bush took office to 2.6 million.