Car exports are improving

The trade gap grew to $40.3bn in July from a revised $40bn in June, broadly in line with expectations.

Exports also rose, reflecting a pick-up in consumer spending and economic activity.

But the markets were more concerned about a surprise increase in weekly jobless figures.

Defying predictions

Despite signs of life elsewhere in the economy, US employment has remained stubbornly weak, prompting speculation about a "jobless recovery".

The US Labor Department said new claims for state jobless benefits rose by 3,000 to 422,000 in the week ending 6 September.

This was the highest level since early July, defying Wall Street predictions for a drop to 400,000 from the 413,000 originally reported for the week ending 30 August.

The 400,000 level is seen by economists as a dividing line between a deteriorating and improving labour market.

'Bad news'

Stocks and the dollar fell on the disappointing jobs report while US Treasury bonds rose.

"It's surprisingly bad news," said John Lonski, chief economist at Moody's Investors Service.

"This tells us that the very good news we had on consumer spending for the months of July and August will not last unless employment growth returns," he added.

Imports soared by $20bn in July, according to the Commerce Department, to $126bn, the highest level since September 2000, suggesting an increase in consumer demand.

Exports also increased to their highest level since May 2001, to $86.1bn, boosted by better demand for US cars and industrial supplies.

China

The trade deficit with China jumped to a record $11.3bn, with imports also rising to a record level.

US manufacturers say China's exchange rate peg to the US dollar is keeping the yuan artificially weak.

As a result, US exports are undercut leading - some argue - to a widening trade gap and massive job losses at American factories.

America's July trade gap with Western Europe was also a record, figures showed.