WASHINGTON — Federal Reserve Chairman Ben Bernanke predicted Tuesday the economy will rebound from an anemic performance at the start of the year even if the housing slump continues.

Economic growth in the first three months of this year nearly stalled, logging just a 0.6 percent pace. It was the worst quarterly showing in more than four years.

However, Bernanke said he believes some of the forces that figured prominently in that poor performance — including a bloated trade deficit, cutbacks by businesses in inventory investment and weak federal defense spending — "seem likely to be at least partially reversed in the near term."

Bernanke made his comments via satellite to an international monetary conference in Cape Town, South Africa. In his talk, he stuck to the Fed's forecast that the economy in coming quarters will advance "at a moderate pace, close to or slightly below the economy's trend rate of expansion." A copy of his prepared remarks was made available in Washington.

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DOW JONES UNION EXPLORING OPTIONS TO MURDOCH BID

NEW YORK — Billionaire investor Ron Burkle is working with a union representing workers at Dow Jones & Co. to explore alternatives to Rupert Murdoch's $5 billion bid for the company, which publishes The Wall Street Journal.

The Independent Association of Publishers' Employees said in a statement Tuesday that it had reached out to Burkle, as well as the billionaire investor Warren Buffett and others, in an attempt to find other potential buyers for Dow Jones. The union strongly opposes Murdoch's bid, saying he might slant the Journal's coverage to suit his business interests.

Burkle, who made a fortune investing in supermarket chains, recently lost out on a joint bid for Tribune Co. with fellow investor Eli Broad, and also worked with newspaper unions on failed bids for Knight Ridder Inc. and for The Philadelphia Inquirer and Philadelphia Daily News.

After initially rebuffing Murdoch's offer in early May, Dow Jones' controlling shareholders, the Bancroft family, held an initial meeting with Murdoch and several of his senior executives Monday to discuss his interest in Dow Jones.

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INDEX RISES IN NONMANUFACTURING SECTOR

NEW YORK — Surprising strength in the nation's service economy, coupled with recent data showing the manufacturing sector is humming, suggest the broader economy may be shaking off slumps in the housing and automotive industries.

The Institute for Supply Management, based in Tempe, Ariz., said Tuesday its index of business activity in the nonmanufacturing sector registered a faster-than-expected pace of 59.7 in May. The reading was higher than April's reading of 56 and Wall Street's expectation of 56.

A reading above 50 indicates expansion, while one below indicates contraction.

The new orders index was 57.4, up from 55.5 in April. The employment index rose to 54.9 from 51.9.

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TPG OFFERS $8.2B FOR AVAYA

BASKING RIDGE, N.J. — TPG Capital is embarking on its second big telecom venture in two weeks, joining with another private equity firm, Silver Lake, in an $8.2 billion bid for Avaya Inc.

Avaya said Monday night that it has agreed to the firms' offer of $17.50 in cash per share, two weeks after wireless phone company Alltel Corp. announced its $24.7 billion buyout by TPG Capital and Goldman Sachs Group Inc.'s GS Capital Partners.

The $17.50 per share price for Avaya is a 28 percent premium over the closing share price on May 25, the last trading day before reports that Avaya was negotiating to sell all or part of the company.

Avaya shares climbed 64 cents, or 4 percent, to $16.72 Monday after rising steadily this year in anticipation of a buyout. The stock has traded from $8.85 to $16.25 in the last 52 weeks.

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STUDY RELEASED BY MAKER OF DIABETES PILL

The maker of the controversial diabetes pill Avandia on Tuesday published preliminary results of a study that the company claims show the drug does not raise heart risks. However, experts say the results are inconclusive and even seem to suggest more risk from the drug.

More people on Avandia suffered heart problems than those on other diabetes drugs — a bad sign even if the difference was so small that it could have occurred by chance alone, some doctors said.

Dr. David Nathan, chief of diabetes care at Massachusetts General Hospital, wrote an editorial accompanying the study, which was published online by the New England Journal of Medicine. A congressional panel is holding a hearing Wednesday on the drug's risks and the response by the federal Food and Drug Administration, which has been criticized for being too lax about safety concerns.

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GM AWARDS CONTRACTS TO DEVELOP PLUG-IN ELECTRIC CAR

WILMINGTON, Del. — General Motors Corp. has awarded two contracts to companies that will help speed up development of its plug-in electric car called the Chevrolet Volt, GM Chairman Rick Wagoner said Tuesday.

Wagoner, speaking Tuesday at the company's annual shareholders meeting, also said GM would introduce four new hybrid models this year.

A company spokesman said the four new hybrids, all previously announced, are the two-mode gas-electric systems in the Chevrolet Tahoe and GMC Yukon large sport utility vehicles, and hybrid systems for the Saturn Aura and new Chevrolet Malibu sedans.

The contracts to design and test lithium-ion batteries went to Michigan-based Compact Power Inc. and to Continental Automotive systems, Wagoner said.

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HONDA TO DISCONTINUE HYBRID ACCORD SEDANS

TOKYO — Honda will discontinue the hybrid version of its Accord sedans, the company said Tuesday, ceding Toyota's dominance of the market with its Prius hybrid.

Honda Motor Co., Japan's No. 2 automaker, will continue to make gas-and-electric models of its Civic sedan but will stop offering the hybrid Accord with the new model expected to go on sale later this year, company spokesman Yoshiyuki Kuroda said in Tokyo.

The Accord hybrid, which is sold only in North America, was a dud, selling just 25,000 since going on sale in 2004, and just 6,100 last year.

Kuroda said the decision underlines how hybrids tend to be more popular with smaller models because mileage improvements tend to be more pronounced.

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GAS, OIL PRICES DROP AS CYCLONE RISK ENDS

NEW YORK — Retail gasoline prices dropped a cent overnight Tuesday, and oil and gas futures also fell as a cyclone approaching the Persian Gulf veered away from major oil facilities.

Though Cyclone Gonu was headed toward Oman's east coast, the country's major oil installations are not directly in the storm's projected path. They continued to operate but took precautionary measures as Gonu approached.

Saudi Arabia's government issued a statement saying the cyclone would have no "direct effect on the central and eastern parts of the kingdom."

Light, sweet crude for July delivery fell 60 cents to settle at $65.61 a barrel on the New York Mercantile Exchange. Gasoline futures for July fell 3.07 cents to settle at $2.2073 on the Nymex.