By Lucia Mutikani

WASHINGTON (Reuters) - U.S. economic growth slowed in the first quarter but not as sharply as previously estimated, and while there are signs of a pickup in the second quarter, analysts worry Britain's vote to leave the European Union could hurt activity later this year.

Gross domestic product increased at a 1.1 percent annual rate, rather than the 0.8 percent pace reported last month, the Commerce Department said on Tuesday in its third GDP estimate. The economy grew at a rate of 1.4 percent in the fourth quarter.

There are indications the economy has regained momentum in the second quarter, with retail sales and home sales rising in April and May, although business spending remains weak and job growth has slowed. But uncertainty following last Thursday's so-called "Brexit" referendum poses a risk to the growth outlook.

"The test comes in the next few months as the turbulence in financial markets may affect consumers' behavior and also weigh on business investment," said Ryan Sweet, senior economist at Moody's Analytics in West Chester, Pennsylvania.

"If financial markets settle down, the effect of the British referendum on the U.S. economy will be very small."

Brexit wiped off $3.01 trillion from global stock markets over two days. On Tuesday, global equities recouped some losses, with financial shares leading the rebound. U.S. stock indexes rallied, while prices for government debt fell. The dollar fell against a basket of currencies.

Economists estimate that Brexit could subtract an average of two-tenths of a percentage point from U.S. growth over the next six quarters, with most of the drag coming through weak business spending as uncertainty causes companies to either delay or scale back capital projects.

"Following the Brexit vote, we expect a stronger U.S. dollar and heightened financial market strains will weigh on domestic activity, but lower interest rates should provide some offset so that the net impact is a marginal negative," said Gregory Daco, head of U.S. macroeconomics at Oxford Economics in New York.

Despite signs growth is gaining steam, economists say the Federal Reserve is unlikely to raise interest rates in the near-term, given the uncertainty over the implications of Brexit.

Fed Chair Janet Yellen told lawmakers last week that data pointed to "a noticeable step-up" in GDP growth in the second quarter. The Atlanta Federal Reserve is currently estimating second-quarter GDP rising at a 2.6 percent rate.

When measured from the income side, the economy grew at a 2.9 percent rate in the first quarter, the quickest pace since the third quarter of 2014.

That was up from the 2.2 percent pace reported last month and reflected upward revisions to corporate profits. After-tax profits increased at a 2.2 percent rate in the first quarter, rather than the previously reported 0.6 percent pace.

DOLLAR, OIL CONSTRAINT

Economic growth in the first quarter was constrained by dollar strength and sluggish global demand. Output was also hampered by business efforts to reduce an inventory overhang, with a further drag coming from lower oil prices, which have unleashed deep spending cuts on capital goods such as equipment.

There are indications that the model used by the government to strip out seasonal patterns from data is not fully accomplishing its goal. The economy has underperformed in the first quarter in five of the last six years.

The government has acknowledged shortcomings with its seasonal adjustment model, and early this month said beginning in mid-2018, it planned to produce estimates of GDP and its major components that are not seasonally adjusted.

These will be released together with the seasonally adjusted GDP estimates.

First-quarter business spending on software, research and development was revised to show it rising at a 4.4 percent rate instead of falling at a 0.1 percent rate. Business spending on equipment fell at an 8.7 percent pace as opposed to the 9.0 percent rate reported last month.

Still, overall business spending sliced off 0.58 percentage point from first-quarter GDP. Business spending has contracted for two consecutive quarters.

Export growth was revised to show a 0.3 percent rate of increase instead of the previously reported 2.0 percent pace of decline. As a result, trade contributed 0.12 percentage point to GDP growth in the first quarter. It was previously reported to have cut 0.21 percentage point from GDP growth.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised down to a 1.5 percent rate, the slowest pace in two years. Consumer spending was previously reported to have increased at a 1.9 percent rate.

The downward revision reflected weak spending on services such as transportation and recreation. But April and May retail sales reports suggest consumer spending has rebounded.

Should financial markets continue to settle down after last week's global equities rout, consumer spending could gain further ground, also aided by lofty savings and rising house prices, which are boosting household wealth.

A report from the Conference Board on Tuesday showed consumer confidence increased to an eight-month high in June. The survey was, however, conducted before last week's Brexit referendum.

"Near-term market volatility may give households reason for pause, but consumer spending should remain a key support for the economy in the coming quarters," said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.

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U.S. GDP http://tmsnrt.rs/1jLPbzV

U.S. home prices (Case-Shiller interactive) http://tmsnrt.rs/23LEcIe

Consumer confidence interactive http://tmsnrt.rs/1qUmtAm

The U.S. consumer: Ipsos, Umich, Conference Board http://reut.rs/1IV1MXu

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(Reporting by Lucia Mutikani; Editing by Andrea Ricci)