An additional 1.5 million people are receiving benefits under an extended unemployment compensation programme approved by the US congress last year, bringing the total number of people receiving unemployment benefits in the US to 6.54 million for the week ending February 7.

Meanwhile in California, legislators finally approved a plan to close a $42bn budget deficit that had threatened to bring the state to financial collapse.

The plan calls for nearly $13bn in new taxes and more than $15bn in spending cuts that Arnold Schwarzenegger, the governor of California, said were essential to prevent the world's eighth largest economy from "going off a cliff".

Bleak forecast

In more gloomy economic news, the Philadelphia Federal Reserve Bank said its business activity index, which gauges factory activity in the Mid-Atlantic region of the US, dropped to minus 41.3 in February from a negative 24.3 the previous month - its lowest level since 1968, after new orders plummeted.

The US Federal Reserve also released a new economic forecast on Wednesday that reduced the country's growth forecast for 2009 and increased its unemployment rate projections.

The new forecast predicts that unemployment will hit between 8.5 and 8.8 per cent this year, up from 7.6 per cent.

The US economy has been battered in recent months by the slumping stock market, the subprime mortgage crisis, a credit freeze and ailing banks.

Barack Obama, the US president, pointed to the deteriorating economy to win quick passage of a $787bn economic stimulus programme which he signed into law this week, a move the government hopes will create up to four million new jobs.

On Wednesday, Obama also unveiled a $75bn programme aimed at halting the rise in mortgage foreclosures following the country's worst housing crisis in decades.