The trade shortfall was expected to weigh on U.S. economic output in the third quarter. Imports replace products that could have been made in the United States, so a widening deficit is a drag on growth.

However, some economists saw a silver lining because oil prices have fallen about 20 percent since setting a record above $78 per barrel in July. U.S. light crude for October delivery was trading around $65 a barrel on Tuesday.

The huge trade deficit is "front page material but at the same time, the numbers kind of bode well for future growth. First, everyone knows how crude prices have come off and that's a big portion of the entire trade," said Tim Mazanec, senior currency strategist at Investors Bank and Trust in Boston.

The Commerce Department report showed U.S. exports dropped for the first time in four months, but were still the second highest on record. Civilian aircraft accounted for much of the export decline, Mazanec noted.

Democrats seized on the record trade gap as evidence that Bush administration trade policies have failed.

"We are on pace this year to have a trade deficit larger than $800 billion. And despite this record-setting number, we continue to negotiate trade agreements ... that leave us naked to competition that is neither free nor fair," said Rep. Xavier Becerra, a California Democrat.

Oil prices have fallen in the past week as tensions over
Iran's nuclear program have eased somewhat and the U.S. summer driving season has ended. The Organization of Petroleum Exporting Countries also agreed on Monday to keep pumping at the high level of 28 million barrels per day, but left the door open to cut production later this year.

The United States imported a record $14 billion worth of oil and other products from OPEC in July. The total value of crude oil imports was a record $20.8 billion, even as the volume declined, the Commerce Department said.

The dollar slipped and then recovered in trading on Tuesday, as dealers shrugged off the trade data and focused on paring large bets against the greenback. U.S. stocks gained as falling oil prices helped ease some inflation concerns.

July imports of industrial goods and materials, capital goods and consumer goods also set records in July, reflecting continued strength in the U.S. economy. Imports from both China and the European Union set records during the month.

"If you look at the U.S. demand for foreign goods, you don't get the impression (U.S. economic) conditions are deteriorating sharply," said Joel Naroff, president of Naroff Economic Advisors.

U.S. exports of consumer goods and auto products set a record in July, although overall exports fell slightly.

U.S. chain store sales last week were up 3.8 percent from a year earlier according to two private surveys. Cooler weather and lower gasoline prices were seen helping spur sales, according the International Council of Shopping Centers and UBS Securities.

The charity urged lenders to take more care when sanctioning loans to young people, who were often encouraged to buy property when their finances remained unstable. A Citizens Advice study found that younger people were the most likely to fall behind on financial commitments, with 13% of those aged 21 to 24 missing a home loan payment.

Runaway property prices have made homes in many areas unaffordable for first-time buyers. Many stretch their finances to get a first foot on the ladder.

Last year the charity helped to deal with 1.25m debt problems and received 87,000 inquiries about actual or threatened homelessness, with a further 51,000 about mortgage and secured loan arrears.

David Harker, chief executive of Citizens Advice, is "very concerned" at the numbers involved. "Missing payments on mortgages or secured loans could lead to arrears and possibly repossession," he said. "There's a clear need for more information and advice about the consequences of taking on financial commitments, particularly for younger adults."

One example of the rapid slide towards financial insecurity is the tale of Keith Cotton, 54. He found himself in mortgage arrears after his business collapsed. Before he called in the official receiver, he had what many would regard an idyllic life - living in a large house in the Mendip hills in Somerset with his wife and six children.

He set up a new venture with a friend after a successful career selling computer software. Two years later, and £200,000 lighter, he was waiting in a queue at a citizens advice bureau, desperate for help to stop the Nationwide building society from repossessing his home.

"If the CAB hadn't negotiated with the Nationwide, I'd be in living in bed and breakfast now or in a council house somewhere," said Mr Cotton. "A mortgage is a huge responsibility when you have a family. Even now, my wife feels insecure because if something goes wrong, no matter how much you have paid into the system, there's no support from the government."

Mr Cotton secured another job, but was soon made redundant. He now has a suspended repossession order against his home and a payment plan until the mortgage is paid off when he is 65.

Citizens Advice said many people failed to understand secured lending. Lenders sell insurance to cover repayments, but campaigners say the policies are expensive, and accuse the lenders of profiteering. Like many home owners, Mr Cotton relied on social security, which covers mortgage payments only after several months.

Among those who bought secured personal loans, 11% of the 2,057 adults surveyed wrongly thought their homes would be safe if they missed repayments.

"The world has only consumed about 18 per cent of its conventional potential," Jumah said, rejecting fears that supplies will run out in a few decades.

Experts have estimated that the Earth's recoverable oil resource is between three trillion and more than four trillion barrels. If consumption rises about two per cent a year from today's levels of about 85 million barrels a day, the low end of that range would only be enough to last until 2070.

Rex W Tillerson, the chairman of Exxon Mobil, has said that world demand for oil will increase by 50 per cent in the next decade.

Jumah said new technology and better recovery rates would make it possible to find enough new oil resources to add one trillion barrels to world reserves over the next 25 years.

Gulf of Mexico find

Drilling is now going on as deep as 10,000 feet below the Gulf of Mexico and between 7,000 and 8,000 feet elsewhere. Experts say a newly discovered petroleum pool beneath the Gulf of Mexico eventually could yield anywhere from three billion to 15 billion barrels.

Industry leaders have gathered in Austria this week for a conference sponsored by the Organisation of Petroleum Exporting Countries.

Earlier this week, the 11-nation group agreed to maintain its current production target of 28 million barrels a day but made clear it would consider a cutting its output before the end of the year if oil prices continue to fall.

Crude prices have fallen to a five-month low, dropping by more than $12 a barrel since record highs in mid-July. Analysts say ample supplies and the easing of political tensions in Lebanon and Iran have driven prices lower.

"There is potential that this could go a long way, since pure supply and demand would dictate a price in the low $50s. But the geopolitical element remains," said Mike Fitzpatrick, vice president at Fimat USA.

Oil has fallen 20 percent in two months, raising questions within the Organization of the Petroleum Exporting Countries about whether to make its first formal output cut in 2-1/2 years.

Many analysts say the extent of the decline depends on OPEC deciding what price it is ready to defend.

"Fundamentally, there's more downside to go, probably to the point where OPEC decides to cut supply," said Mike Coleman, a partner with Singapore-based hedge fund Aisling Analytics.

Iran's oil minister said he wanted to see OPEC's basket of crudes holding above $60 a barrel, about $64 for U.S. crude, while other officials have in the past mooted a $50-$60 range.

OPEC, which has avoided naming a new target price, decided on Monday to maintain production limits at 28 million barrels per day (bpd), but said it could meet again before the end of the year to review the situation.

"It is the only good decision they could have taken because prices are still very high," International Energy Agency head Claude Mandil told Reuters.

Saudi Oil Minister Ali al-Naimi, OPEC's most influential voice, said oil demand would remain healthy next year, but OPEC's own economists now say there will be less need for crude from the producer group, which pumps a third of the world's oil.

Geopolitical risk in Iran, the world's fourth-largest oil exporter, appeared to be easing.

U.S. Secretary of State Condoleezza Rice on Monday held out the possibility of the United States joining talks with Iran if it temporarily suspends its nuclear program. An EU diplomat said Tehran might be willing to do so.

Iranian negotiator Ali Larijani offered a two-month freeze on uranium enrichment during weekend talks, the diplomat said. Rice's comments suggested Washington was looking for a way to begin negotiations as long as Tehran halted its work first.

But the inquiry also reportedly uncovered evidence of murder. The Italian daily La Repubblica said police had listened in to a conversation in which a farm guard told his girlfriend that two of his charges had escaped. "I'll not allow them to behave like that," he was quoted as saying. "I've said that today I'll kill one or two as an example."

The paper said police in Puglia, the region in Italy's heel, were looking into the deaths of 15 people - 14 Poles and a Lithuanian - who could have been murder victims. Some were burnt to death. Others had been drowned or run over.

By yesterday, the Polish website carried the names - and, in most cases, the photographs - of 123 men and women who vanished over the past six years after saying they were going to Italy to work, usually as farm labourers or carers. The site also includes advice for those considering working in Italy. Among other things, they are advised to take with them enough cash for an escape.

Electricity and gas supplies to the home of government spokesman Jean-François Copé were cut off as part of the protest, unions said.

The government is proposing to reduce the state holding in GDF to 34 percent in order to facilitate the company's planned merger with the French energy group Suez.

However the measure is opposed by the left-wing opposition, which has tabled a record 130,000 amendments in a bid to stall the bill's passage through the National Assembly.

According to an opinion poll for Les Echos newspaper Tuesday, only 12 percent of the public support GDF's privatisation. Some 38 percent are totally opposed and 43 percent would be in favour if the state remained a majority share-holder.

The ruling Union for a Popular Movement (UMP) has itself been divided over the proposed sell-off, and among the demonstrators in Paris Tuesday was UMP deputy Nicolas Dupont-Aignan.

Gas and electricity workers were also angered by UMP proposals published in a newspaper Tuesday to reform the pension system by ending the early retirement provisions available for EDF and GDF staff as well as some other state employees.

The proposals were set out by former minister François Fillon, an adviser to UMP presidential hopeful Nicolas Sarkozy.