* U.S. household debt rose at 2.5 pct annual pace in Q4 2012
* Consumer debt up 6.6 pct, fastest increase since Q3 2007
* U.S. household net worth up $1.1 trillion in Q4
By Alister Bull
WASHINGTON, March 7 (Reuters) - U.S. household debt grew at its fastest pace since early 2008 in the fourth quarter of last year, a possible sign that the painful process of paring back borrowing in the aftermath of the financial crisis may have run its course.
Household debt rose at a 2.5 percent annual rate in the fourth quarter, the Federal Reserve said on Thursday. It was the steepest gain since the first quarter of 2008 and only the third quarter since then in which debt levels rose.
The data also showed that the net worth of American households grew solidly, rising $1.1 trillion to $66.0 trillion, another hopeful sign for future U.S. consumer spending.
U.S. household net worth peaked at $67.1 trillion in the third quarter of 2007, and the latest reading was the highest since the end of that year, before the crisis hammered home prices and sent stock values plummeting.
The United States is slowly recovering from a severe recession sparked by the crisis. Growth remains tepid and unemployment in January was a lofty 7.9 percent, but the Fed has taken aggressive steps to spur spending, investment and hiring.
Home mortgage debt shrank at a 0.75 percent pace in the fourth quarter, the slowest rate of decline since early 2009. In addition, consumer debt rose at an annualized 6.5 percent pace, the biggest gain since the third quarter of 2007 and evidence of growing confidence among households.
That said, total household debt stood at $12.83 trillion in the fourth quarter, well below the $13.83 trillion peak notched in early 2008.
The data showed Americans have made a lot of progress repairing their balance sheets from the harm done by the crisis, and are now in better shape to take advantage of low interest rates to borrow and spend.
"The deleveraging of private households is over," Ham Bandholtz, chief U.S. economist at UniCredit in New York, wrote in a client note. "It is ... an important reason why the U.S. economy will continue to expand solidly."
Economists believe a shift away from public and toward private borrowing will help offset the headwinds caused by tighter U.S. fiscal policy following tax hikes in January.
The Fed has held interest rates near zero since late 2008 and has tripled the size of its balance sheet to around $3 trillion to support growth, underwriting a recovery in housing and a rally that has driven U.S. stocks to record highs.
The U.S. central bank said the increase in Americans' net wealth in the fourth quarter was aided by a $480 billion gain in the value of real estate and a $130 billion advance in the value of household stock portfolios.
The Fed's easing of monetary policy has also been aimed at persuading businesses to invest and hire more. But the data showed that the level of liquid assets held by non-financial companies grew to $1.79 trillion in the fourth quarter from $1.77 trillion in the previous three months.
Business advocates say that investment will pick up as the economic climate improves, but also complain that uncertainty being created by budget battles in Washington has encouraged corporations to keep more cash on hand.