Evidence of an economic slowdown in the United States mounted yesterday, causing the dollar to weaken and raised expectations of a further cut in interest rates at the end of this month.

The most ominous economic news came from Philadelphia where the Federal Reserve Bank's general economic index showed the worst performance in 10 years for manufacturing in the area, with a slump in orders, shipments and hiring.

This follows on the heels of a government report that manufacturing production on a national level fell 1.1 per cent, the biggest decline since March 1991. Other data in the run up to the inauguration tomorrow of President-elect George Bush suggest that the slowdown in the world's largest economy is more pronounced than previously thought. It suggests that the new administration will be fully preoccupied with bringing about a soft landing.

While acknowledging a slowing economy, the Federal Reserve is still saying there is no crisis. It says that while manufacturing is badly affected, the economy overall is in good shape. In its first assessment since cutting interest rates on January 3rd, the central bank pointed out that workers laid off were quickly re-employed in other firms.

The accumulation of slowdown reports has encouraged speculation the Federal Reserve will cut interest rates to stimulate growth when it meets on January 31st. This will further dampen demand for the dollar.

Federal Reserve chairman Mr Alan Greenspan, who cut the benchmark overnight lending rate from 6.5 to 6.0 per cent on January 3rd, citing weakness in the US economy, is scheduled to testify to the Senate Budget Committee in Washington on January 25th. The hearing will focus on the crisis in the US economy.