The nation's economy will continue expanding in the second half of the year, but at a pace slower than first quarter, PNC Financial Services Group's chief economist said yesterday.

Senior Vice President Stuart G. Hoffman's forecast came after the Commerce Department reported first-quarter gross domestic product grew 3.8 percent, better than the 3.7 percent pace economists were expecting and up from a previous estimate of 3.5 percent.

Stronger spending on housing projects, more investment by business in equipment and software and a trade deficit that was less of a drag on economic growth contributed to the rosier report for the first three months of the year, putting to rest fears that the economy was slipping.

"It was a solid quarter, particularly in the face of high and rising energy prices," said Mark Zandi, chief analyst at Economy.com.

"It illustrates the resilience of the economy and the durability of the current economic expansion."

Hoffman said the report "blows away discussion a couple months ago about a soft spot in the economy," though he does expect GDP -- a broad measure of economic activity that takes into account consumer and government spending as well as trade -- will expand at a slower inflation-adjusted pace of 3 percent to 3.5 percent in the second half.

While Hoffman continues to be worried about energy prices, he expects that low mortgage rates and state and local government budget surpluses will provide a lift.

He also dismissed fears of a housing bubble and a concern that low mortgage rates have sparked a flurry of speculative buying, boosting home prices to unsustainable levels. "I think housing is going to remain especially strong," he said.

Hoffman made the remarks during a conference called with reporters on the midyear outlook for the economy and financial markets.

PNC Advisors chief investment strategist Jeff Kleintop forecast an 8 percent advance for the stock market in the second half but a flat performance for bonds. The Standard & Poor's 500 Index was flat in the first half, with the price of the broad market indicator declining about 1 percent.

Stocks have performed well in the second half in each of the last four years, Kleintop said. Dividend increases and a wave of mergers and acquisitions that are priced at more realistic levels will help strengthen the market despite the doubts of many.

"Investors are taking a pretty pessimistic view of the market," Kleintop said.

Energy prices remain a concern, although they haven't been as much of a drag as Hoffman feared. Some of the impact has been muted because gasoline prices haven't risen as fast as the price of oil. He estimates that each $10 increase in the price of oil shaves 0.2 or 0.3 percentage points off GDP growth.

Kleintop said that at some point, a spike in oil prices or a sustained price increase will have a greater impact. "I don't know what the price level is, but we haven't hit it yet," he said.

Hoffman expects the Federal Reserve to continue its measured increase in short-term interest rates, starting with another 0.25 percentage-point increase when the central bank concludes a two-day meeting today. The target federal funds rate on overnight loans between banks, currently at 3 percent, may be as high as 3.75 percent by the end of the year, the PNC economist said.