PORTLAND – Treasury Secretary Paul O’Neill said Monday that the United States can afford to take action against Iraq, and predicted the economy will be growing at a rate of 3 percent to 3.5 percent by year’s end.

Speaking at the kickoff of a two-day swing through New England, O’Neill said the U.S. economy has suffered through a recession, the terrorist attacks and corporate fraud, but could be in far worse shape.

The economic growth rate in the spring was an anemic 1.1 percent.

But interest rates remain at historic lows, inflation is low, new home and car sales are strong and retail sales are improving, he said.

“It is not a rocket’s red glare into the sunset with astronomical rates of real growth,” O’Neill said. “But it’s a bumpy road to improvement.”

O’Neill started his day at the Eastland Park Hotel, where he addressed about 200 members of the Greater Portland Chambers of Commerce.

O’Neill said the U.S. government should be able to run at a surplus with 3 percent to 3.5 percent annual economic growth. Even when the economy is growing at a rate of 0 percent to 1 percent, the government should not have a deficit, he said.

There will be a deficit this year, however, because of the recession and additional government spending on national security after the Sept. 11 attacks, he said.

Still, O’Neill said the United States can shoulder the costs of taking action against Iraq: “Whatever it is that’s decided to be done, we will succeed and we can afford it.”

Lawrence Lindsey, head of the White House’s National Economic Council, said in Monday’s Wall Street Journal that he estimates waging war against Iraq could cost the United States as much as $200 billion.

O’Neill gave a nearly identical speech later in the day in New Hampshire where he addressed the Nashua Chamber of Commerce and toured GT Equipment Technologies in Nashua.

On Tuesday, O’Neill will open the New York Stock Exchange and attend a conference before traveling to Connecticut to address the Connecticut Business and Industry Association and tour the University of Connecticut Health Center.

The goal is to hear from employers and workers about the condition of the local economy and to promote the president’s economic plan, his office said.

In Portland, O’Neill spoke for about 20 minutes before taking questions ranging from the stock market’s dismal performance to how the state’s forest products industry can be rejuvenated.