BRUSSELS, Belgium (Reuters) -- The euro zone economy grew at its fastest quarterly rate in six years in the second quarter, reinforcing market expectations of two rather than one more interest rate rises by the European Central Bank this year.
European Union statistics office Eurostat said on Monday gross domestic product in the 12 countries using the euro rose 0.9 percent quarter-on-quarter in April to June -- the fastest growth since the second quarter of the dot-com boom year 2000.
Eurostat said that year-on-year, GDP growth in the euro zone accelerated to 2.4 percent from 2.0 percent in the first quarter and 1.7 percent in the last quarter of 2005.
Economists polled by Reuters had expected 0.7 percent quarterly growth and a 2.3 percent annual expansion.
"The recovery is no longer in question. The data is a bit too good because there are special effects, but clearly this is growth above trend," said Holger Schmieding, economist at Bank of America.
While detailed figures on GDP components will be available only from August 31, economists said country data suggested second-quarter euro zone growth was fueled mainly by domestic demand -- private consumption and investment.
They said consumption was probably exaggerated by the soccer World Cup held in Germany in June and July as well as a rebound in construction activity after poor weather in winter, but even despite that, growth was strong.
The second-quarter expansion is a further acceleration from the 0.6 percent quarterly growth in the first three months and 0.3 percent in the last quarter of 2005.
It was led by the euro zone's two biggest economies, Germany and France, which expanded 0.9 percent and 1.2 percent on a quarterly basis respectively.
ECB expected to raise rates again
In a regular forecast, the European Commission raised its estimate for third-quarter GDP growth in the euro zone to a range of 0.5-0.9 percent quarter-on-quarter from 0.3-0.7 percent projected on July 12. It cut its fourth-quarter GDP growth forecast to 0.4-0.9 percent from 0.5-1.0 percent.
In the first quarter of 2007, the Commission expects the euro zone economy to expand between 0.2 and 0.8 percent on a quarterly basis, it said in a statement.
Economists said the strong second quarter made it almost certain that the European Central Bank, which has been hiking rates since December to stem inflationary pressure from record credit growth and oil prices, would keep raising credit costs.
"At the moment, the ECB faces an environment in which GDP growth is robust, business surveys are still upbeat, money growth is in double-digit territory and inflation is well above target," said John Butler, economist at HSBC.
"We take these numbers as confirmation that the ECB will hike again in October and then again in December, taking rates back to 3.5 percent by the end of the year," he said.
But the bank is likely to pause after that for most of 2007, to see what happens in the global economy and what effect a planned rise in German value-added tax will have on economic growth, economists said.
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