U.S. nonfarm productivity increased at a much faster clip than previously thought in the second quarter as businesses squeezed more output from employees, while wage inflation was muted.

Productivity increased at a 2.2 percent annual rate rather than 1.6 percent, the Labor Department said on Wednesday. Productivity, which measures hourly output per worker, fell at a 0.5 percent rate in the first three months of 2012.

Economists had expected second-quarter productivity would be raised to a 1.8 percent rate. The revision reflects an upward adjustment to the country's second-quarter economic growth estimate to a 1.7 percent pace from 1.5 percent.

U.S. financial markets were little moved by the data, with traders keeping an eye on global developments.

Businesses emerged from the 2007-09 recession lean and are showing little urgency to ramp up hiring, relying on their existing workforces to meet production and keeping wage growth under control.

Unit labor costs rose at a 1.5 percent rate in the second quarter rather than 1.7 percent, the report showed. Unit labor costs accelerated at a 6.4 percent rate in the first quarter.

Sluggish wage growth, combined with lackluster domestic demand, point to tame inflation pressures and keep the door open to further monetary easing by the Federal Reserve to stimulate the economy.

Fed Chairman Ben Bernanke last week described the labor market's stagnation as a "grave concern," raising expectations among economists that the U.S. central bank would decide to pump more money into the sluggish economy at its September 12-13 meeting through a third round of bond purchases.

"On year-on-year terms, unit labor costs growth remains well contained at 0.9 percent, suggesting that the FOMC is unlikely to become concerned about upside inflation risks as it considers its policy options at its September meeting," said Yelena Shulyatyeva, an economist at BNP Paribas in New York.

Output increased at a 2.4 percent rate in the second quarter instead of the previously reported 2.0 percent. Output increased at a 2.7 percent pace in the first quarter.

Productivity grew rapidly as the economy recovered from its steep downturn, peaking at a 6.8 percent growth rate in the second quarter of 2009. Gains came as companies cut costs, particularly their wage bills.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)