It also follows a day of heavy losses on the global financial markets.

In Europe the German Dax down 4.5 per cent by mid-afternoon Thursday, and the UK FTSE index fell by almost 140 points, or three per cent in day trading.

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.

Unemployment fears

Bush is expected to approve an extension
of unemployment benefits [AFP]

The White House reacted swiftly to the unemployment news, saying George Bush, the US president, would sign an new extension of unemployment benefits after it was approved in Congress 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.

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 US Labour Department had 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 started slashing prices as the holiday season 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."

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.

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.