In Asia, Japan's benchmark Nikkei and South Korea's Kospi index each fell by more than six per cent while Hong Kong's Hang Seng index closed down four per cent on Thursday.

Last month, the US unemployment rate jumped to a 14-year high of 6.5 per cent, with 10.1 million people looking for work, an increase of 2.8 million over the past year.

The White House reacted swiftly to the unemployment news, saying George Bush, the US president, would sign an new extension of unemployment benefits if approved by US Congress, as is expected to happen on Thursday.

"The president believes it would be appropriate to further extend unemployment benefits, and he would sign the legislation now pending in Congress," spokeswoman Dana Perino said in a statement. 

Record plunge

To add to US economic woes,  on Thursday a private research group said its forecast of future economic activity in the US declined 0.8 per cent in October, worse than analysts expected.

The index, which which weighs indicators such as manufacturers' new orders and supplier deliveries, has fallen four of the last six months.

The US Labour Department also said on Wednesday that its consumer price index (CPI) fell by one per cent in October, the biggest drop since the department began releasing data in February 1947 and worse than analysts' expectations.

The record plunge followed little change in prices in September and August and was led by oil prices plummeting from their record highs in July.

But despite the falling prices of many items, from houses to oil and stocks, very few people are buying.

Prices slashed

Car makers such as General Motors have
been badly hit by the crisis [Reuters]
Big high street retailers in many countries have also started slashing prices as Christmas approaches in an attempt to entice shoppers.

"The domino which is pushing all of this forward is the enormous level of debt compared to incomes all around the world," Steve Keen, associate professor of economics at University of Western Sydney, told Al Jazeera.

"That debt is simply beyond the level where the physical economy can service it, and that is ultimately what is driving down prices and economic performance."

"Unemployment is rising, household wealth is falling, and credit conditions are tight," Moody's economic analysts also said. "Squeezed from all sides, consumers are being frugal."

While falling prices across the board could benefit consumers, analysts have warned they could hurt corporate profits and cause deflation, a prolonged bout of falling prices that has not been experienced in the US since the Great Depression in the 1930s.

Deflation could stifle growth, prolonging the economic downturn.

Car woes

Japan also reported on Thursday that its exports had fallen at the fastest pace in almost seven years as demand in China, the US and Europe had dropped, causing it to post its second trade deficit in three months.

The announcement came just days after confirmation that the Asian powerhouse had fallen into recession as major manufacturers cut production because of falling global demand.

The government figures showed that the electronics industry and car manufacturers had been particularly badly hit.

After other production cuts by Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co, Isuzu said on Thursday that it would axe 1,400 contract workers as it lowers its lorry output for this fiscal year.

Car makers have been hit across the world, with the big three US manufacturers appearing before the US senate banking committee on Wednesday to plead for a portion of the $700bn financial bailout agreed by US politicians last month.

US Democrats have been pushing for funding from the bailout to be granted to the auto industry, but so far Republicans in Congress and White House officials have resisted the calls.

In France, car manufacturer PSA Peugeot Citroen said it would cut 2,700 jobs.