WASHINGTON - The U.S. economy continues to limp along with scattered gains by business in some regions offset by weakness in California and elsewhere, the Federal Reserve Board reported yesterday.

"Economic activity has been improving slowly in most of the nation, but the pace of recovery has been uneven across regions and sectors," according to the board's "beige book."

The report is based on a survey of business conditions in the 12 Federal Reserve Bank districts and serves as a guide for the Federal Open Market Committee, the central bank's 12-member monetary policy group that is scheduled to meet Oct. 6.

The latest findings are similar in tone to the last beige book on Aug. 5, which called business conditions "uneven" around the country.

The districts of Cleveland, Dallas, Kansas City, Philadelphia, and Richmond reported "modestly improved conditions" since the last report, the Fed said. Chicago and the San Francisco district, on the other hand, reported "some weakening of conditions."

The other five districts of Boston, New York, Atlanta, St. Louis, and Minneapolis all reported continued slow expansion in business activity, the Fed said.

The inflationary outlook remains relatively benign, the report says. "Little upward pressure on prices has been evident," except for lumber, natural gas, and other products affected by Hurricane Andrew.

In the retail sector, activity appears to be steady or slightly higher in most regions, the report says. Minneapolis, Philadelphia, and Richmond reported a pickup in sales in recent weeks, and Chicago and New York reported sales growth through August and early September.

However, Dallas reported sluggish economic conditions in most major markets. Boston said two-thirds of its retailers saw sales declines during the summer, and southern California watched sales continue to drop.

Auto sales were generally sluggish, with the exception of Dallas and several other districts. Chicago and Cleveland reported that major automakers are disappointed by recent sales and that car dealers have cut back orders to prevent inventory buildup.

There is not much brightness in the manufacturing sector either, the report says. Auto production fell in recent weeks, while job losses continued to mount in the aerospace and defense-related industries. Fourth-quarter auto production is not expected to be any higher than the low third-quarter pace even if losses are made up from the General Motors strike.

The districts of San Francisco, St. Louts, Boston, and Cleveland all reported cutbacks at defense and aerospace firms.

Still, there were a few bright spots in manufacturing. Cleveland, for example, reported firms producing high-tech products and industrial equipment were getting increases in orders. Chicago and several other districts reported rises in nonmilitary electronics and other types of exported goods.

Boston and several other districts reported housing sales on the rise, apparently reflecting the latest round of reductions in mortgage interest rates. Sales were strongest for homes in the low- to mid-price range, the report says.

The commercial real estate sector continued to languish as a result of weak demand by business and high vacancy rates.

Financial institutions reported that loan demand was generally flat. Increases in mortgage lending, partly due to refinancings, were offset by weakness in demand for consumer and commercial credit.

St. Louis, Dallas, San Francisco, and New York all reported soft loan demand despite low interest rates.

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