"When combined with the decline in import prices, these are more signs of an economy that is decelerating on the downside with price deflation ... it will create additional concerns about weakening in the economy and corporate profits," said Jim Awad, chairman at WP Stewart and Co, a US investment firm.

Markets down

The number of workers applying for state unemployment benefits had briefly declined in the previous two weeks, but have now surged again as companies sack workers following the economic downturn and the global financial crisis.

Data released last week showed employers cut just over half-a-million jobs in November, the largest number in 34 years, pushing the unemployment rate to 6.7 per cent - the highest since 1993.

US stock markets fell after the report was released.

The Dow Jones industrial average slid 10.99 points, or 0.13 per cent, to 8,750.43.

"We keep thinking the financial crisis is over and one by one we find a new industry that is in dire straights," said Carl Birkelbach, head of Birkelbach Management, a Chicago investment firm.

"It appears to me that the credit crunch is going to continue and the ramifications will be negative."