The Federal Reserve System Wednesday reported a modest uptick in economic growth for February, further dampening hopes of an interest rate cut later this month.

The monthly summary of economic conditions, known as the Beige Book, also indicated moderate growth or stability in loan demand in all but two of the 12 Federal Reserve Districts.

The report, which indicated some improvement in the economy over January, fueled doubts that the Federal Reserve will cut interest rates at its March 26 meeting. But it left open the possibility of a rate cut later in the year, said Christine Chmura, chief economist of Crestar Bank in Richmond, Va.

"I think overall the tone of the report is better than the January report, but it doesn't point toward a rapid acceleration in economic growth," she said.

Economists noted that growth in loan demand has slowed over the last several months.

"I'm not sure loan demand has peaked out for good, but it's certainly flattening out," said Theodore Tung, chief economist at National City Corp. in Cleveland. "We've seen that pattern over the last several months."

The Cleveland Fed reported a "significant slowdown" in loan demand, the report said.

"Industries are making cutbacks, and retailers are discounting to get rid of inventory, so there's reduced demand for new loans," Mr. Tung said. "In the Midwest and the national economy, we're seeing moderate growth, not a recession. But in the short term, we'll see some volatility."

The San Francisco Fed said California institutions have reported "slight easing of business loan demand," but added that the level of demand is still high and that consumer credit demand is on the rise.

The district bank also reported that bank earnings are strong and credit quality is good "despite stiff competition for loans and deposits."

The New York Fed said spreads narrowed at 65% of the banks in its district, as loan rates were steady or lower. It noted higher loan delinquencies at 20% of the banks, and a steady delinquency rate at 70%. The nonresidential mortgage segment experienced the largest increase in delinquencies, the New York Fed said.

Mr. Duchemin writes for the Medill News Service.

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