WASHINGTON - THE US economy contracted at a 1.0 per cent annual pace in the second quarter, the government said on Friday in its first estimate of gross domestic product (GDP) that was better than anticipated.

The Commerce Department figure was stronger than expected by private forecasters who had called on average for a 1.5 per cent drop.

The agency's latest revisions showed a revised 6.4 per cent decline in the first quarter, worse than the previous estimate of a 5.5 per cent drop.

In the fourth quarter of 2008, the drop was revised to 5.4 per cent instead of 6.3 per cent.

The report lent credence to predictions that the world's biggest economy was close to emerging from a recession that began in December 2007 after a bursting of a housing bubble.

Many segments of the economy remained extremely weak. Private investment was down 20.4 per cent, but that was better than a 50 per cent plunge in the first quarter.

Consumer spending, the main driver of economic activity, fell 1.2 per cent after a rise of 0.6 per cent in the first quarter.

But positive contributions came from increased auto production, trade and a rebuilding of business inventories after big productions cutbacks.

Real final sales of domestic product - a key figure that strips out inventory adjustments - showed a 0.2 per cent drop in the second quarter, compared with a decrease of 4.1 per cent in the first.