UPDATE 2-Obama says U.S. economy not growing fast enough

* Says administration had expected weak economic data

* Faces public frustration over jobs, slow growth

* Economy top issue ahead of Nov. 2 midterm elections

(Adds quote about politics in paragraph 8)

By Caren Bohan

WASHINGTON, Aug 29 (Reuters) - President Barack Obama said on Sunday the U.S. economy was expanding, but not quickly enough, and there was no "magic bullet" that will fix its problems.

Obama said in an NBC interview that the batch of grim economic data over the past few weeks was something his administration had anticipated.

Gloomy reports on gross domestic product and housing have raised fears the fragile economy could slip back into a recession or face a lengthy period of growth that is too slow to make much of a dent in the 9.5 percent unemployment rate.

"The economy is still growing, but it's not growing as fast as it needs to," Obama told NBC in the interview in New Orleans, where he stopped after a vacation on the Massachusetts island of Martha's Vineyard.

Obama faces a dilemma in trying to reassure Americans about the economy without appearing to be out of touch with frustrations, which have been rising over the sluggish growth and scarcity of jobs.

The economy is the top issue in the Nov. 2 congressional elections, where Obama's Democrats are bracing for potentially big losses to Republicans.

Obama's first week back at the White House will be heavily focused on foreign policy issues. He is to deliver an address on the Iraq war from the Oval Office on Tuesday night and hosts a summit on Middle East peace on Wednesday and Thursday.

Obama gave little indication in the interview of any new proposals that might be unveiled in the near future. He noted that that the "short-term politics" of the election season might make it hard to get such measures passed.

"We're in the silly season -- political season, which means that for the next two months there's gonna be constantly a contest in the minds of members of Congress," he said.

But he urged the U.S. Congress to pass some of his existing proposals such as plans aimed at spurring lending to small businesses and tax breaks for such firms. He also touted his initiatives to encourage investment in clean energy.

"We should be passing legislation that helps small businesses get credit, that eliminates capital gains taxes so that they have more incentive to invest right now," he said. "There are a whole host of measures we could take. No single element of which is a magic bullet."

GDP, the measure of total goods and services output within U.S. borders, was revised down to 1.6 percent from an earlier estimate of 2.4 percent, according to the Commerce Department.

Sales of previously owned U.S. homes have plunged to their slowest pace in 15 years.

"We anticipated that the recovery was slowing," Obama said.

Federal Reserve Chairman Ben Bernanke said last week the central bank was ready to take further steps if needed to spur economic growth but some analysts say the Fed is limited in what it can do because interest rates are already at ultra-low levels.

Obama also faces constraints on his ability to act.

The White House has said the $862 billion stimulus package he pushed through Congress last year saved millions of jobs and prevented the economy from sliding into a more severe decline.

But Republicans contend the sluggish growth shows the stimulus has not worked and they say it has only served to bloat the U.S. budget deficit.

Criticisms of the stimulus and concerns over the deficit might make it hard for Democrats to make the case for additional fiscal measures.

Obama said it was important to balance the need to help the economy in the near term with ensuring the budget deficit does not explode in the future.

He said the deficits resulted from the "incredibly deep recession." But Obama added: "We've got to keep on pushing to grow the economy. But we've also on the medium term and the long term have to get control of our deficit."

(Writing by Caren Bohan; Editing by Stacey Joyce)