The US economy shrank more than previously reported in the third quarter, turning in its weakest performance in a decade.

However, Wall Street took the news in its stride, buoyed by an unexpectedly strong jump in consumer sentiment and a sharp reduction in business inventories which raised hopes for an end to the recession in 2002.

The US government first estimated that the economy contracted in the July-September quarter at a rate of 0.4 per cent, then revised this upwards to 1.1 per cent a month ago. Yesterday, the US Commerce Department revised the rate once more to 1.3 per cent, the biggest since 1991. The good news was that businesses got rid of excess stocks of unsold goods at an unprecedented rate.

The current quarter may, however, be even weaker, analysts say, with the recession worsened by the knock-on effect of the September 11th attacks. American consumers, who drive two thirds of the world's biggest economy, cut back on their spending in November by 0.7 per cent, the Commerce Department reported, after splashing out in October on once-off offers of zero-financed cars and cut-price merchandise.

Last month, however, 300,000 workers were laid off and consumer confidence sagged. Rising unemployment caused Americans' incomes - including wages, interest and government benefits - to fall for the third month in a row by 0.1 per cent, which was lower than anticipated.

On Wall Street, investors found more cheer in the University of Michigan's final report on December consumer sentiment. This showed a rise to 88.8, an increase of five points from November.

Toronto-based Nortel Networks, a leading supplier of network equipment, turned in a better-than-expected earnings report, though it expects to post a fourth-quarter loss that includes a $630 million (€700 million) charge. Nortel jumped 66 cents to $7.02, pulling up several Nasdaq stocks.