Sept. 5 (Bloomberg) -- The Federal Reserve found the effects of the August credit-market rout on the broader economy to be ``limited'' beyond the housing industry, according to its regional business survey.

``Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited,'' the Fed said in the survey, which concluded before Aug. 27 and was released today in Washington. ``Economic activity has continued to expand'' nationwide, the Fed said in the Beige Book, named for the color of its cover.

The assessment carries more weight than usual ahead of the Fed's Sept. 18 meeting to set interest rates, because regular monthly economic reports fail to capture the impact of the credit-market sell-off. Chairman Ben S. Bernanke said last week that ``we will pay particularly close attention'' to information from regional business contacts.

While tighter lending standards were having a ``noticeable effect on housing,'' several banks reported that ``credit availability and credit quality remained good for most consumer and business borrowers,'' the Beige Book said.

Two Fed districts reported ``a moderate pace'' of expansion, three districts described an economy expanding at a ``modest rate,'' and four districts reported a slower pace of expansion. The New York Fed cited ``continued expansion.''

`More Anecdotes'

``We would have thought there would be more anecdotes of stress in employment and economic conditions outside of housing,'' said William O'Donnell, head of U.S. rates strategy at UBS Securities LLC in Stamford, Connecticut. ``There doesn't seem to be any indication that is the case.''

Still, O'Donnell said a Fed interest-rate cut on Sept. 18 is ``not a question of if, but how much'' -- a quarter-percentage point or half point -- from the current 5.25 percent target.

Members of Congress are calling for lower borrowing costs. ``I think the time has come to reduce interest rates,'' said Representative Barney Frank, a Massachusetts Democrat who chairs the House Financial Services Committee.

U.S. stocks stayed lower, while Treasury notes held their gains after the report. The yield on the benchmark 10-year note was 4.47 percent at 5:57 p.m. in New York, while the Standard & Poor's 500 index closed down 1.2 percent, at 1,472.29.

Today's Beige Book was compiled by the Federal Reserve Bank of Cleveland.

Rate Cut

The report suggests that the housing recession and global financial-market turbulence stemming from U.S. subprime-mortgage defaults has yet to have broader effects on the world's largest economy. Investors expect the Fed to cut its benchmark rate by at least a quarter percentage point this month.

Bernanke, in his first public remarks in six weeks, pledged on Aug. 31 to stop the credit market rout from wrecking the six- year expansion.

The Fed ``continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets,'' he said at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming.

Officials were forced to cut the interest rate on direct loans to banks on Aug. 17 and shift their policy focus to growth, rather than inflation. The Fed chief suggested in his speech that the central bank is prepared to cut the discount rate further or use additional tools to ease market strains.

Worst Since 1982

The collapse of the housing boom is taking its toll. Residential construction has subtracted from economic growth for six straight quarters, the longest streak since 1982, and lopped 0.6 percentage point off the expansion in the second quarter.

Today, executives from U.S. homebuilders met with Fed officials in Washington, said Donna Reichle, a spokeswoman for the National Association of Home Builders. She said the group and industry officials have regular meetings with the Fed throughout the year.

``Most districts reported weak or declining residential sales and declining or stable prices,'' though there were some pockets of strength, the Fed said. At the same time, commercial real estate was ``generally stable to expanding'' with ``somewhat tighter credit conditions,'' the Fed said.

Manufacturing expanded at the slowest pace in five months in August as buyers cut orders of furniture and computers, the Institute for Supply Management's index showed yesterday. The report is one of the first indicators to provide a glimpse of how the mortgage crisis may have affected spending.

Manufacturing

In the Beige Book, most districts reported gains in manufacturing, with four reporting ``solid growth'' and two saying activity was ``mixed.''

Data for past months showed the economy picked up pace in the second quarter and inflation receded. Gross domestic product rose at a 4 percent annual rate from April to June, the Commerce Department said Aug. 30, up from an initial estimate of 3.4 percent.

Retail sales in the survey period were ``generally positive, with increases characterized as modest to moderate,'' the Fed said. In almost all districts, there were ``modest increases in employment.'' The Labor Department releases its report on August job growth and the unemployment rate Sept. 7.

The Fed's preferred inflation gauge, which excludes food and energy costs, rose 1.9 percent in the year to July, the same rate as the previous month. The measure has fallen from 2.5 percent in February.

``Most districts reported little change in overall price pressures,'' today's report also said.

To contact the reporter on this story: Scott Lanman in Jackson Hole, Wyoming, at slanman@bloomberg.net;

Last Updated: September 5, 2007 18:02 EDT