The U.S. economy appears to have shaken off the gloom from Europe's debt crisis in the fourth quarter, pushing ahead at what was likely its fastest pace in nearly two years.

The performance, driven by auto purchases and restocking by businesses, marks a stunning reversal of fortune for an economy that skated perilously close to recession earlier in the year.

The economy was able to generate significant momentum despite all the hiccups that we had, said Millan Mulraine, senior macro strategist at TD Securities in New York.

Economists estimate U.S. gross domestic product grew at a 3.0 percent annual pace in the October-December period, according to the median Reuters poll.

That would be a step-up from the third-quarter's 1.8 percent rate and it would be the quickest pace since the second quarter of 2010. The government releases its first estimate of fourth quarter growth on Friday at 8:30 a.m.

While the report could show solid consumer spending, much of it will likely be driven by pent-up demand for cars. Supply disruptions from Japan's big earthquake and tsunami last March curbed auto production early in the year, leaving dealers unable to provide the models consumers wanted.

Indeed, there will likely be a range of reasons - from cooling business investment to softening export growth to a temporary buildup in inventories - to keep any euphoria over the strengthening of the recovery under wraps.

The unfavorable composition of growth and expectations of a weakening European economy suggest the economy will lose much of its momentum early this year.

SPENDING FRONT-LOADED

Consumer spending, which accounts for about 70 percent of U.S. economic activity, is expected to have picked up from the third quarter's 1.7 percent rate spurred by the auto purchases.

But indications are that spending ended the year with a whimper. While retailers reported brisk business during the holiday season, they offered huge discounts to attract shoppers.

The growth in consumer spending was front-loaded, a lot of it happened in the beginning of the quarter, said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

With income growth still sluggish, households have had to tap savings and credit cards to fund their purchases.

Consumers will be pretty hard pressed to continue spending at the rate that they did in the fourth quarter, said Vitner.

After months of selling off inventory as demand grew, businesses moved to restock their shelves in the fourth quarter, which would offer only a temporary support for growth.

At the same time, business investment in capital goods probably grew for an eighth straight quarter, but there are signs the euro zone's troubles are starting to erode business sentiment.

Shipments of capital goods, excluding aircraft, weakened in the fourth quarter. The crisis is also starting to affect export growth, with exports to the euro zone slowing in November.

While exports make up only about 13 percent of GDP, they have accounted for a disproportionate share of growth since the recession ended in 2009.

But the expected drag from exports this year could be mitigated by a turnaround in housing.

The concerns about Europe are going to supplant concerns about the housing sector, which I think will begin to modestly improve in 2012. In contrast to recent years, we will see modest growth in residential construction in 2012, said Vitner.

Still, the odds of a recession are seen very slim, even if the crisis in Europe deteriorates further.

Economists say factors - including positive demographics, cash-rich businesses and inventories which remain at record lows relative to sales - have given the economy a firmer foundation to fight off the headwinds coming from Europe.

The anticipated slowdown is not really an indictment of the domestic fundamentals but more the vulnerability of the recovery to exogenous shock, particularly the unfolding events in Europe, said TD Securities' Mulraine.

(Reporting by Lucia Mutikani; Editing by James Dalgleish)

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