The OECD says the US economic rebound is gathering steam as business investment picks up, but it has warned that the huge US current account and budget deficits are clouding the economy's long-term prospects.

The Organisation for Economic Cooperation and Development predicted that the US economy was on course to grow 4.5% this year, raising its estimate from a forecast in November of 4.2%.

The Paris-based organisation calculated growth would slow in 2005 to 3.7%.

It said a recovery which started in mid-2003 was growing broader, fuelled by household and government spending but increasingly including business investment.

The OECD nonetheless urged the US government to take measures to tackle the current account and budget deficits to avoid stunting future growth.

Although recent tax cuts had helped underpin the recovery, it said, savings and the tax base needed to be increased.

Calling for urgent measures to tackle the deficit, the OECD warned that cutting back on government spending would not be enough, adding that the tax base should be widened rather than reversing disputed tax cuts.

After a federal budget deficit of 3.5% of gross domestic product last year, the OECD expects the shortfall to reach up to 4.5% of GDP this year.

The OECD said that if widening the tax base did not generate enough income then the US should consider a national value added tax.