Jan. 18 (Bloomberg) -- Ukraine's economy advanced 7 percent last year, more than double the pace of 2005, as investments     surged and rising steel prices helped boost output and the value of exports.

Growth accelerated from 2.7 percent a year earlier, the Kiev-based state statistics office reported today on its Web site, citing preliminary figures.

Ukraine's $105 billion economy is expanding for an eighth   year as foreign companies seek to invest in the former Soviet republic. Production of steel, which makes up more than 40 percent of total exports, helped boost output 6.2 percent, double the pace of the previous year and eased concern that Russia's doubling of natural gas prices on Jan. 1, 2006, would hurt the economy.

``The final growth figure will probably be as much as 7.4   percent, led by a jump in industrial output,'' said Olena Bilan, an analyst at Kiev's largest brokerage Dragon Capital, in a phone interview.

The government, the World Bank and the International Monetary Fund, had initially forecast growth of 2.5 percent for last year because of the higher gas prices. They raised their outlook after investment and consumer spending helped bolster the expansion.

Sales, Income

Ukrainian retail sales surged 25 percent last year, the state statistics committee said yesterday. Personal income increased 26 percent in the first 11 months of the year, while total spending rose 32 percent.

Foreign investment increased $3.53 billion in the first three quarters of 2006, compared with $1.18 billion in the same period a year ago.

The government expects the economy to grow 6.5 percent this year, while the inflation rate will fall to 7.5 percent. The rate totaled 11.6 percent in 2006, compared with 10.3 percent a year before. Producer prices rose 14.1 percent in 2006, compared with 9.5 percent in 2005.

The World Bank and the IMF forecast the economy will advance as much as 4.5 percent in 2007 as prices for steel may decline and consumer spending will shrink. The inflation rate will slow to 10.7 percent.

``We expect the economy will grow 5.7 percent this year because we do not think that steel prices will fall on world markets,'' Bilan said. ``We agree that consumer spending will decline as taxes rose, local authorities increased household utility costs and the cabinet will not increase wages so much in 2007 like it did previously.''