The signing follows years of talks

The deal makes Chile only the second country in Latin America, after Mexico, to become a preferred trading partner with the US.

The agreement was signed in Miami by US trade representative Robert Zoellick and the Chilean Foreign Minister Soledad Alvear.

Mr Zoellick praised Chile as "an exemplary economic partner".

High standards

The deal is being seen as a reward for the free market, export-oriented policies pursued by Chile's President Ricardo Lagos in recent years.

"Chile is the freest, most competitive economy in Latin America and it has set a very high standard," Mr Zoellick said.

"The signing today recognises Chile's achievements."

The US is Chile's biggest export market with copper, salmon, wine and grapes being the country's top exports.

The trade deal will see tariffs cut on 85% of goods traded between the two countries.

Chile estimates the agreement will lead to the value of its exports to the US rising to $5bn a year during the first three to four years of the deal from the current level of $3.6bn.

Delay

The agreement between the US and Chile still needs to be ratified by Congresses in both countries.

The details of the deal were settled in February this year, but the signing of the agreement was delayed after relations between the two countries were strained by President Lagos' opposition to the US war in Iraq.

The US currently has free trade agreements with Mexico and Canada, and ultimately aims to create a wider free trade zone, the Free Trade Area of the Americas (FTAA), embracing the whole of North and South America.