The new iPod Photo

The new iPod comes in two versions, including a 60-gigabyte model capable of storing 25,000 colour photographs, which retails at $599 (�335) in the US.

The device is intended to meet demand for convenient ways of storing pictures in the age of digital photography.

"We think music plus photos is the next big thing," said Apple boss Steve Jobs.

Success story

The iPod has become a must-have accessory since it was first introduced in October 2001, transforming Apple's financial performance.

Apple sold 2 million iPods in the three months to September 2004, lifting its profits by 50% compared with the same period last year.

How to download music Microsoft launches iTunes rival

The company has sold more than six million of the devices altogether, giving it a 50% share of the global market for digital music players.

The new product is more expensive than existing models, but analysts still expect it to lift sales again during the run-up to Christmas.

However, Apple faces stiff competition from electronics giant Sony and computer firm Dell, which have both developed rival digital music players.

And specialist firms such as Archos, Creative and iRiver have already produced hand-held devices which can store and display photos and videos as well as record music.

Endorsed by U2

Apple simultaneously launched a 'digital box set' compiling all of the albums by top-selling Irish rock band U2, which fans will be able to download for $149 from the company's online iTunes music store next month.

It is the first time that the complete works of a music artist have been available in a single digital package.

Analysts said the move blazes a trail in the online music industry, with other artists and digital music sellers expected to follow suit.

To promote the U2 box set, Apple is also issuing a special edition iPod, which comes in black with a bright red click wheel, and bears copies of the four band members' signatures.