(AFP) The government will spend another RM1 billion to pump-prime its economy after last week's terror attacks in the United States, a report said today.

The new allocation comes six months after a three billion ringgit fiscal package was unveiled to shore up the economy due to a slowdown in the US.

Minister in the Prime Minister's Department Rais Yatim told the Chinese-language daily Nanyang Siang Pau the cabinet approved the new spending at its weekly meeting yesterday after a lengthy discussion on the terrorist attacks.

The newspaper said the cabinet agreed Malaysia could not afford to ignore the impact of the strikes and the one billion ringgit would be channeled towards projects that benefit the general population.

Rais told the daily the cabinet wanted to reduce the country's reliance on exports.

"To reduce the impact of the attacks on our economy, we must raise domestic production and economic activity. Our economic growth in the second quarter was only 0.5 percent, we need to push for more economic activities," he said.

Closely-pegged

The measure came shortly after Prime Minister Dr Mahathir Mohamad last week said the government was considering further pump-priming measures to mitigate fresh weakness in the US.

The premier said the Malaysian economy was "closely-pegged" with that of the US and the terrorist attacks would divert attention away from trade to security matters.

The US accounts for about 19 percent of Malaysia's foreign trade, mainly in rubber products, textiles and clothing, optical and scientific goods, electrical and electronics products and wood products.

Bilateral trade last year was estimated at RM120 billion. In the first two months this year, Malaysia's exports to the US rose 13 percent year-on-year to RM11.5 billion.

The influential Malaysian Institute of Economic Research predicted the economy would contract in the third quarter but ruled out a recession.

The government will for a second time revise its official growth forecast for this year when it unveils its 2002 budget next month. In March it cut its growth estimate from seven percent to between five and six percent. The economy grew 8.5 percent in 2000.