Robert Zoellick hailed the 'cutting-edge' deal

The Central American Free Trade Agreement, or CAFTA, was struck between the US and Guatemala, El Salvador, Nicaragua and Honduras.

A fifth nation, Costa Rica, pulled out of the talks on Tuesday saying it needed more time to consider demands being made by the US.

However, the US hopes to reach an agreement with Costa Rica soon.

Free-trade policy

The CAFTA agreement aims to abolish nearly all trade barriers between participating countries over the next decade.

The US hopes that the deal - which has still to be approved by Congress - will help to accelerate the development of the proposed Free Trade Agreement of the Americas (FTAA).

The FTAA would create a free trade zone stretching from Alaska to the southern tip of Chile, covering 800 million people.

US trade representative Robert Zoellick welcomed the CAFTA agreement.

"Negotiations began last January, and today we have fulfilled that vision with a cutting-edge, modern free-trade agreement to tear down the tariff walls that block trade between the United States and Central America, between friends and neighbours," he said.

But CAFTA has met resistance in the US from those industries likely to face tough competition from cheap imports.

US sugar cane and sugar beet farmers have expressed concern, as has the US textile industry.