The economy grew at an annualized rate of 2.8%, the Commerce Department said. This was up from the 1.8% annual rate recorded in the previous quarter, although it was slightly lower than the 3% rate predicted by analysts.

However, the growth largely came from businesses stockpiling goods they had produced, rather than selling them.

Although the stockpiling lifted the figures, analysts believe businesses will not continue doing this, resulting in a lower growth figure for the current quarter.

The pace of consumer spending picked up to 2% from 1.7% in the previous quarter.

Much of this was attributed to an increase in sales of new cars, which rose by 14.8% over the quarter.

The Japanese tsunami last March disrupted production and delivery of models for major manufacturers, leaving customers waiting for pre-ordered cars.

The bank’s rate-setting committee voted five to two in favor of the cut. It had raised rates five times this year in order to combat rising prices.

The surprise cut has raised questions about the independence of the central bank, after a number of politicians called for a rate cut in recent days.

These included President Dilma Rousseff, who took office in January.
The central bank said high debt and weaker growth in developed economies could impact on Brazil.

A number of analysts were baffled by its decision to cut rates.

Republicans on Wednesday blocked a bill to raise the debt limit, demanding Democrats first agree to spending cuts.

The US risks default if Congress does not authorize more borrowing by August. A downgrade would increase borrowing costs, slowing the economic recovery.

The US runs a $1.5tr (£916.8bn) deficit and is already about $14.3tr in debt. The country reached its debt ceiling last month, but the US treasury department has begun taking extraordinary measures to avoid breaching the limit.

Leaders of both parties agree to the need to trim the budget in the face of massive budget overruns, but Republicans have refused to allow tax increases, while Democrats have vowed to protect costly social programs.

He called the decision a “balancing act”, amid concern the move worsens debt problems for Portugal and others.

“The hike is unwelcome for peripheral countries, but arguably the core member states were in need of this move already some time ago,” said Mr Trichet in a nod to the differing economic fortunes of the eurozone members.

“In that sense, the timing of the increase is a balancing act, which is part and parcel of the one-size-fits-all monetary policy.”

Germany has enjoyed a strong rebound in growth, led by an export boom. The euro’s exchange rate was volatile during the speech as investors tried to make sense of his comments, before moving decisively lower against the dollar.

Many analysts expect the Fed to start pumping around $500bn (£310bn) into the economy to boost the fragile recovery.

The economy grew by an annual rate of 2% between July and September – not enough to reduce high unemployment.

Some analysts see QE as the last chance to get the US economy back on track. Interest rates are already close to zero, which means the Fed cannot reduce rates any further in order to boost demand – the more traditional policy used by central banks to stimulate growth.

Instead, it is likely to announce a fresh round of QE, in which it would pump hundreds of billions of dollars into the economy by creating money to buy government bonds.

The programme has been dubbed QE2, after the Fed pumped $1.75tn into the economy during the downturn in its first round of QE.
Most analysts expect QE2 to total around $500bn, with the possibility of further injections in the future.

“We expect the statement will announce an intention to purchase $500bn of longer-dated Treasury securities over the next six months,” said Michael Feroli at JP Morgan Chase.

“In addition, we expect the statement will express a willingness – but not necessarily a bias – to further increase asset purchases if warranted by economic conditions.”

The weekend talks, in South Korea, saw the group of 20 major advanced and developing nations, agree to avoid competing to lower their currencies.

The meeting sparked another fall in the US dollar, which fell 1% against the yen to 80.52 yen.

The lower dollar also boosted the price of metals. In London trading, base metals rose by an average of 2.5%.

Copper was at its strongest since peaking at a record in July 2008, hitting $8,549 a tonne, while lead and zinc hit their highest in nine months.

The dollar is being undermined in part by the view that the US will start a new round of Quantitative Easing (QE).
That has the effect of pumping money into the economy.

A lower currency can help to boost a country’s exports by making the goods relatively cheaper to foreign buyers.

China and the US are at the centre of the story, with the US most concerned about the level of China’s yuan, which does not trade freely on the currency markets.

The US wants China to allow the yuan to rise to make its own goods cheaper within the country, and China’s goods more expensive for US citizens.

“There would appear, all else being equal, to be a case for further action,” he said, in a speech to the Boston regional federal reserve.

The US central bank is expected to back a move to buy up US government bonds in order to lower borrowing costs at its next meeting on 3 November.

Mr Bernanke said unemployment and low inflation lay behind his view.
However, some colleagues at the Fed have expressed much more hawkish views, and Mr Bernanke was careful not to pre-empt the decision of the rate-setting committee due next month.

In his speech, he did not give any indication of the size or timing of any new quantitative easing, but did confirm it was likely to target US government bonds.

Previously the Fed has bought up billions of dollars of US mortgage debts.

US Commerce Department figures showed the gap between imported and exported goods grew by 8.8% to $46.4bn (£29bn).

Imports from China grew 6.1% in August to a record $35.3bn. The US trade deficit with China also set a new record of $28.0bn.

US exports to China remained essentially unchanged at $7.3bn.
The previous record trade deficit with China was $27.9bn in October 2008.

The US has been pressing China to let the value of the yuan rise against other currencies.

The American government says that Beijing’s current policy, which limits the movement of the yuan against the dollar, gives Chinese exporters an unfair competitive advantage.

Overall, US exports edged up a slightly, by 0.2%, but this was overshadowed by a 2.1% increase in imports.

“I have made clear that China supports a stable euro,” he said.

He also promised not to cut China’s investment in European bonds, despite the recent crisis which has weakened the value of many such bonds.

Mr Wen is visiting Greece, the worst-hit of the 27-nation European Union. He has promised to buy Greek government bonds the next time they go on sale.

China has said it needs to diversify its foreign currency holdings and has bought Spanish government bonds.

Later in the week, the Chinese leader will attend an EU-China summit, where the subject of the yuan is almost certain to come up.
China’s economic growth slowed to an annual rate of 10.3% in the second quarter of the year, from 11.9% in the first quarter. The government is targeting growth of 8% for the year as a whole.

Beijing announced plans on Saturday to make the yuan more flexible, breaking its strict peg to the US dollar.

And on Tuesday, for the first time since the pledge, its central bank raised the centre point of the currency’s official trading band.

But analysts said China would still limit the appreciation so as not to damage its export-led economy.
‘Limited’ gains

The move, ahead of the G20 summit later this month in Toronto, has tempered market fears of a possible trade war between China and the US. But Beijing has ruled out a large, one-off move in the yuan’s value.

China’s central bank says it plans to keep the Chinese yuan “stable” and there will be no immediate revaluation of the currency.

“China has backed up all the talk with action,” said Brian Jackson, of Royal Bank of Canada in Hong Kong.

He added that China’s president, Hu Jintao would now arrive in Toronto “with tangible evidence that China is serious about increasing the flexibility of its exchange rate”.

However, Mr Jackson said that in the coming months there would be only “limited” gains against the dollar.