The US economy has continued to suffer from the effects from the slide in the property market.

Sales of US new homes rose by 2.6% last month but the below-forecast increase was insufficient to dispel concerns over the performance of the housing market.

Current demand for is 23% lower than a year ago, a reflection of concerns about future economic prospects and problems in the sub-prime lending market in particular.

Analysts blamed the worsening figures on the sub-prime mortgage market, which has effectively dried up. Sub-prime lenders loan money to people with poor credit histories and the recent collapse of one such lender is being investigated by regulators and Congress.

Mortgage companies that have made massive profits from offering lending to consumers with poor credit histories have had to sharply reduce their activities, because rising arrears has sent several lenders into bankruptcy and attracted the attentions of politicians, who are investigating unscrupulous lending practices.

Some analysts fear a further drop in the housing market, coupled with a sluggish manufacturing sector, may trigger a recession. Separate figures published by the Conference Board showed US consumer confidence fell last month to its lowest level since August.

The National Association of Realtors said that the annual rate of second-hand house sales was 5.99 million in April, down 2.6 per cent and significantly below the 6.18 million that had been expected. Across the country, the price of the average US home was $220,900 (£111,300) last month, down 0.8 per cent from $222,600 in April 2006.

US gross domestic product (GDP) grew at annual rate of just 1.3% in the first three months of the year, down from 2.5% in the previous quarter.