Morrissey was among artists due to take part in the Lollapalooza tour

The travelling rock festival was due to start on 14 July, playing in cities including Toronto, New York and Dallas.

Lollapalooza's website said promoters and organisers had faced a "very tough decision" after realising they risked losing millions of dollars.

Co-founder Perry Farrell said: "My heart aches along with the bands."

'Tough summer'

Acts including Morrissey, Sonic Youth, the Pixies, Basement Jaxx and the Flaming Lips were set to feature on the tour.

You can imagine the dismay I share at this moment with the artists and musicians who were looking forward to the tour Lollapalooza co-founder Perry Farrell

Alex Hodges, executive vice president of HOB Concerts, said: "In real terms, it's been a tough summer.

"Tickets sales have been mixed and often inexplicably soft.

"There are a number of contributing factors and, as a result, many tours have been cut back, re-routed or cancelled."

Mr Farrell, lead singer of the band Jane's Addiction, said on the festival's website: "You can imagine the dismay I share at this moment with the artists and musicians who were looking forward to the tour.

Cultural experience

"Lollapalooza could no longer see fit to continue this year.

"Our plight is a true indication of the general health of the touring industry and it is across musical genres."

He said organisers were now intent on "rebuilding and recreating the festival in surroundings more conducive to the cultural experience we've become known for".

The festival, which began in 1991 as a celebration of alternative rock, was revived last year after a six-year break.

Several dates were cancelled in 2003 despite the appearance of popular bands Jane's Addiction and Queens of the Stone Age.

Ticket holders would be given full refunds, the website said.