Applications for building permits, considered a good reading of future activity, also fell in March to an annual rate of 513,000 units, lower than the 550,000 economists expected.

US stocks fell slightly in morning trade following the news, after US banking giant JP Morgan Chase reported better than expected earnings of $2.4bn in this year's first financial quarter, with the Dow Jones Industrial Average down 62.93 points,
or 0.8 per cent, to 7,966.69.

The most severe US recession in decades has already led to five million job losses, pushing unemployment up to 8.5 per cent in March this year.

'Glimmers of hope'

The US Federal Reserve has said it expects the US unemployment rate will probably "rise more steeply into early next year before flattening out at a high level over the rest of the year,'' minutes from the central bank's March meeting released earlier this month said.

Many private economists expect the rate will hit 10 per cent by the end of the year.

However Barack Obama, the US president, said last week that he saw "glimmers of hope" in the US economy, which has been battered by the US subprime mortgage crisis, failing financial institutions and global market turmoil.

"If we don't flinch in the face of some difficulties, then I feel absolutely convinced that we are going to get this economy back on track," he said at a news conference on Friday.

However, he said that the US economy remained under "severe stress" and said there was still "a lot of work" to do.