The U.S. Federal Reserve held steady on interest rates on Wednesday, leaving its key rate unchanged at 5.25 per cent.

The U.S. central bank said recent evidence has pointed to firmer economic growth, "and some tentative signs of stabilization have appeared in the housing market."

The Fed, which hasn't changed the federal funds rate since late June 2006, said inflation pressures seem likely to moderate over time but cautioned that high levels of resource use could keep up pressure on prices.

The latest Fed decision comes on the same day figures were released showing that U.S. economic growth topped expectations in the fourth quarter of 2006 despite a big slowdown in investment in residential construction.

Strong consumer spending helped the U.S. economy grow at an annual pace of 3.5 per cent in the fourth quarter, beating economists' expectations of three per cent.

The fourth quarter acceleration ended two consecutive quarters of slower economic growth.

Investment in home building fell by 19.2 per cent in the fourth quarter, the biggest drop in 15 years. The fall in residential building cut 1.16 percentage points off the fourth-quarter growth rate.

The Fed's next decision on interest rates is scheduled for March 21.