Feb. 14 (Bloomberg) -- European economic expansion cooled in the fourth quarter as a U.S.-led global slowdown curbed export demand and soaring food and energy costs undermined consumer spending.

Gross domestic product rose 0.4 percent from the third quarter, when it increased 0.8 percent, the European Union's statistics office in Luxembourg said today. Economists expected fourth-quarter growth of 0.3 percent, according to the median forecast of 31 economists in a Bloomberg News survey. From a year earlier, the economy expanded 2.3 percent.

The slowdown in Europe's expansion may intensify this year as the U.S. economy, the world's biggest, hovers near a recession. While the European Central Bank has held off cutting interest rates as inflation accelerated to a 14-year high, it said the risks to economic growth are ``unusually high.''

``No breakdown of GDP is available, but our take is that weakness was broad-based, with scant private consumption and weak exports,'' said Aurelio Maccario, an economist at Unicredit MIB in Milan. ``What worries now is that the future doesn't promise to be particularly bright.''

A housing slump in the U.S. has curbed economic expansion, prompting the International Monetary Fund to cut its forecast for global growth this year to 4.1 percent from 4.4 percent.

`Knock-On Effects'

The U.S. economy grew at an annual rate of 0.6 percent in the final three months of 2007, down from 4.9 percent in the prior quarter, according to figures published on Jan. 30. While there will be ``knock-on effects'' from the U.S. slowdown and the euro's strength against the dollar, which makes euro-area goods less competitive, that may be tempered by consumer demand, said Nick Kounis, an economist at Fortis Bank in Amsterdam.

``What we'll probably see is two offsetting forces,'' Kounis said. ``We're looking at a measured slowdown, a different story than what we're seeing in the U.S. and the U.K.''

The euro, which reached a record $1.4949 on Feb. 1, rose 0.3 percent to $1.4621 as of 12:15 p.m. in Brussels.

Bonds declined as gains in stock markets damped investor demand for the safest assets. The yield on the 10-year German bund rose 3 basis points to 3.99 percent. Europe's Dow Jones Stoxx 600 index advanced 0.3 percent, while Germany's DAX and France's CAC also rose.

Borrowing Costs

Borrowing costs for consumers and companies jumped last year as BNP Paribas SA and other European banks ran up losses on investments tied to U.S. mortgages. As the U.S. economy cools, the Federal Reserve has slashed interest rates.

While the ECB has yet to follow suit, policy makers have acknowledged there are downside risks to growth. ECB council member Guy Quaden this week said the slowdown in the U.S. economy will be ``more pronounced'' than anticipated, suggesting the ECB may revise its growth forecasts made in December.

Growth in Germany, Europe's biggest economy, rose 0.3 percent from the third quarter, when it increased 0.7 percent, according to separate figures today. Expansion in France also eased to 0.3 percent, from 0.8 percent, while Spanish economic growth unexpectedly accelerated.

The fourth-quarter data ``was no disaster, but worse is to come,'' said Ken Wattret, chief euro-area economist at BNP Paribas in London. The euro region's service industries grew at the slowest pace in more than four years in January as a measure of new business declined. Consumer and executive confidence fell to a two-year low.

Cardboard Boxes

ThyssenKrupp AG, Germany's largest steelmaker, said yesterday that profit declined 35 percent in the three months through December on slowing demand in Europe. Elsewhere in Europe, Smurfit Kappa Group Plc, the world's largest maker of cardboard boxes, yesterday forecast a ``modest'' growth in profit this year and said the outlook is ``uncertain.''

Still, the IMF said in its Jan. 29 report that it expects emerging markets to weather the deterioration in advanced economies, which may help bolster demand at European companies. MAN AG, the region's third-largest truckmaker, on Feb. 5 said fourth-quarter profit rose 33 percent as vehicle deliveries surged in the booming economies of Poland and Russia.

Japan's economy grew 3.7 percent in the fourth quarter, twice the pace economists forecast, as Asian demand boosted exports, the Cabinet Office in Tokyo said today.

The EU statistics office didn't publish a breakdown of fourth-quarter GDP. In Germany, exports and equipment spending helped boost growth in the fourth quarter, today's report said. Consumer spending dropped. The statistics office is scheduled to publish a breakdown of the fourth-quarter data on Feb. 26.

In France, consumer-spending growth eased and exports fell. Corporate investment increased 1 percent, after 1.1 percent growth in the third quarter.

To contact the reporters on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net; Simone Meier in Frankfurt at smeier@bloomberg.net.

Last Updated: February 14, 2008 06:26 EST