WASHINGTON, March 13 (Reuters) - U.S. economic growth slowed more sharply than initially thought in the fourth quarter amid downward revisions to consumer spending and business investment, government data showed on Friday.

Gross domestic product increased at a 0.7% annualized rate last quarter, revised down from the initially reported 1.4% pace, the Commerce Department's Bureau of Economic Analysis said in its second GDP estimate. Economists polled by Reuters had forecast GDP growth would be unrevised at 1.4%.

The economy grew at a 4.4% pace in the third quarter.

Last quarter's growth pace was lowered also because of downgrades to government spending, mostly on state and local government structures, and export growth. Last year's record 43-day shutdown of the government also weighed on GDP growth.

Final sales to private domestic purchases, which excludes government, trade and inventories, grew at a 1.9% pace. This measure of domestic demand, closely watched by policymakers, was initially estimated to have increased at a 2.4% rate. Domestic demand grew at a 2.9% pace in the July-September quarter.

Though a pick up in growth is expected this quarter, the U.S.-Israeli war with Iran, which has driven up oil prices, is clouding the economic outlook.