Feb. 28 (Bloomberg) -- New-home sales in the U.S. tumbled last month by the most in 13 years and fourth-quarter economic growth was less than previously estimated, dousing speculation that the worst of the slowdown is over.

January new-home purchases fell 16.6 percent, the most since 1994, the Commerce Department said today in Washington. The department in a separate report said gross domestic product, the sum of all goods and services produced, grew at an annual rate of 2.2 percent, compared with the 3.5 percent reported on Jan. 31, and the 2 percent the previous quarter.

Federal Reserve Chairman Ben S. Bernanke played down the figures, saying the growth revision is in line with his estimates and predicting a rebound later this year. His remarks helped lift stocks after the biggest slide in four years.

``One by one, various growth indicators for the U.S. economy are tipping to the downside,'' said Avery Shenfeld, a senior economist at CIBC World Markets Inc. in Toronto. ``The housing market still looks decidedly in a downtrend. The Fed appears to be somewhat late in adjusting its views.''

A separate report showed a national business activity index unexpectedly dropped this month. The National Association of Purchasing Management-Chicago said its business barometer fell to 47.9 this month, the lowest since October 2002, from 48.8 in January. A reading lower than 50 signals contraction.

For all of last year, the economy grew 3.3 percent, compared with 3.2 percent in 2005.

Treasury Notes and Stocks

Treasury notes dropped, reversing almost half of a gain yesterday that was the biggest since 2004. The benchmark 10-year note yield, which moves inversely to price, rose to 4.56 percent at 4:56 p.m. in New York, up from 4.51 percent lat yesterday. The Standard & Poor's 500 Index rose 7.8, or 0.6 percent.

``There's a reasonable possibility that we'll see some strengthening of the economy sometime during the middle of the year,'' Bernanke said in response to a question during testimony at the House Budget Committee.

Bernanke said that ``there didn't seem to be any single trigger'' for the plunge in stocks yesterday and declined to speculate on the causes. He did say that the Fed and other U.S. financial regulators have been ``closely monitoring the markets,'' which seem to be functioning ``normally.''

Earlier this week, former Fed Chairman Alan Greenspan was quoted by Associated Press as saying that he couldn't rule out a U.S. recession later this year.

New-Home Sales

New homes sold at an annual pace of 937,000 in January, the fewest since February 2003, after a 1.123 million rate the previous month, the Commerce report showed. The figure was less than the lowest estimate in a Bloomberg News survey. A measure of housing inventory rose to the highest in three months.

Weather that was warmer-than-average in December helped to boost sales that month and may have had the opposite effect on the figures in January as winter storms gripped parts of the country at month's end, economists said.

Homebuilding also weighed on growth last quarter. Residential construction fell at an annual rate of 19.1 percent, compared with an 18.7 percent drop the previous three months. The decline, the biggest since 1991, subtracted 1.2 percentage points from growth, the GDP report showed.

An oversupply of unsold houses caused builders to retrench last month, signaling construction will keep weighing on growth. Builders in January started work on the fewest number of new homes since August 1997, a Commerce Department report earlier this month showed.

Curbing Inventories

A drive to trim inventory was the biggest reason for last- quarter's reduced growth rate. Companies added to inventories at an annual rate of $17.3 billion, compared with the $35.3 billion pace reported Jan. 31 and a $55.4 billion rate of increase in the third quarter. The decrease subtracted 1.35 percentage points from GDP, almost double the previous estimate.

A report yesterday showed companies are in no hurry to boost stockpiles. January orders for durable goods fell 7.8 percent, the most since October, the Commerce Department reported. A gauge of demand for business equipment dropped by the most in three years.

Automakers have been among businesses slashing inventories amid falling sales. Purchases dropped 17 percent in January at General Motors Corp. compared with the same month last year, prompting a deeper cut in its North American production.

Greenspan's Assessment

Former Fed Chairman Greenspan, now a private consultant, earlier this week wasn't as sanguine as Bernanke about the outlook for growth.

``When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign,'' Greenspan said via satellite link to a business conference in Hong Kong, according to AP. ``While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment.''

Today's GDP report also showed a measure of inflation watched by the Fed eased. The core personal consumption expenditures price index, a measure of prices tied to consumer spending and excluding energy and food, rose at an annual rate of 1.9 percent last quarter. The index compared with a previous estimate of 2.1 percent and a 2.2 percent rate in the prior quarter.

Several Fed policy makers, including Bernanke, have said they would be comfortable with an increase in the 1 percent to 2 percent range for this measure.

Consumer spending, which accounts for about 70 percent of the economy, remained an area of strength last quarter. Purchases rose at a 4.2 percent annual rate, after growing at a 2.8 percent pace the previous three months. Spending gains have averaged about 3.7 percent a quarter over the past decade.

``I feel very good about the economy,'' Terry Lundgren, chief executive officer of Federated Department Stores Inc., the second-largest U.S. department-store chain, said in an interview yesterday. ``I feel very good about the consumer right now.''

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.netJoe Richter in Washington jrichter1@bloomberg.net

Last Updated: February 28, 2007 16:56 EST