The US recorded its highest ever monthly trade deficit in April. The shortfall in seasonally adjusted goods and services of $11.4bn was much higher than the $9bn the market had been expecting.

There was more bad news with an upward revision of the March deficit from $9.1bn to $9.8bn. However, the foreign exchange markets reacted calmly to the latest evidence of red ink on the US external account.

The trade gap with Canada rose from $1.2bn to $1.6bn, that with China climbed from from $1.8bn to $2.2bn, while trade with Western Europe swung from balance to a $.4bn deficit.

Although the trade deficit with Japan fell back slightly from $6.1bn in March, it still continued to account for the lion's share. At $5.9bn, it was responsible for just over half the overall shortfall in the US overseas trading account.

The figures will do little to ease trade tension ahead of last-ditch talks in Geneva to avert the US threat of punitive sanctions against Japan. On an unadjusted basis, automotive imports from Japan rose to $2.44bn from $2.23bn in March while those from Germany rose 28 per cent. According to HSBC Markets, the Japanese figure was the second highest ever recorded.

Analysts interpreted the figures as increasing chances of a cut in interest rates next month. "It's another reason for lowering interest rates," said Cheryl Katz, economist with Merrill Lynch in New York.

Ahead of next month's open markets committee meeting, the US Federal Reserve released its Beige Book, a summary of current economic conditions. The central finding was that economic activity "remains at a high level across much of the nation, although there are indications of some softening..."

Activity in interest-sensitive sectors generally remained "well below year-earlier levels" and continued to decline in some areas. Loan demand was largely flat, with some falls in lending rates. Labour markets remained tight, but little wage pressure was evident. While prices continued to rise, the rate of increase had recently diminished in some parts of the US.

Publication of the Beige Book followed remarks made earlier in the week by Alan Greenspan, the Fed chairman, when he warned there had been some increase in the risk of a "modest recession" in the near term.