WASHINGTON (AP) - The economy grew at a solid 3.8 percent annual rate in the final quarter of 2004 - stronger than previously estimated- and an encouraging sign that the business expansion was firmly entrenched at the start of the new year.

The new reading on gross domestic product, released by the Commerce Department Friday, was better than the government's initial calculation made a month ago. That estimate showed the economy growing at a 3.1 percent pace.

The improvement reflected more robust spending by businesses on capital equipment and to build up inventories of goods. The trade deficit also was less of a drag on fourth-quarter growth than initially thought.

GDP, the broadest barometer of the country's economic health, measures the value of all goods and services produced within the United States.

The new fourth-quarter GDP figure also was better than the 3.5 percent growth rate that economists had forecast in advance of Friday's release by the Bureau of Labor Statistics.