US consumer prices have fallen to their lowest levels in more than 60 years, the US government has revealed, in the latest poor economic news for the troubled US economy.

The US Labour Department said on Wednesday its consumer price index (CPI) fell by one per cent, the biggest drop since the department began releasing date in February 1947 and worse than analysts' expectations.

The record plunge followed little change in prices in September and August and was led by plummeting oil prices from their record highs in July.

However food prices have continued to climb, up 0.3 per cent in October following a gain of 0.6 per cent in September, pushing the annual rate to 6.1 per cent.

The news also comes as the US government says that construction of new homes slumped 4.5 per cent last month to the lowest level since records began in 1959.

The US Commerce Department said on Wednesday that construction of new homes and apartments dropped to an annual rate of 791,000 units, down from a revised September rate of 828,000 units.

The combined news prompted US stocks to fall in the first hour of trading, with the Dow Jones Industrial Index falling 61.41, or 0.73 per cent, to 8,363 points.

Deflation fears

While lower prices may benefit US consumers, analysts warn they can hurt corporate profits.

In addition, lower prices also raise the threat of deflation, a prolonged bout of falling prices that has not been experienced in the US since the Great Depression in the 1930s.

The market is also preparing for more testimony on Wednesday in US Congress from the leaders of the so-called Big Three auto manufacturers, General Motors, Ford Motors and Chrysler.

The companies' executives appeared before the US senate banking committee on Tuesday to request a portion of the $700 billion financial bailout agreed by US politicians last month.

US Democrats have been pushing for funding from the bailout to be granted to the auto industry, however so far Republicans in Congress and White House officials have resisted the calls.