The economic optimism induced this week as Americans began to receive $110 billion (£55.8 billion) of tax rebates has been dashed by bad news about everything from house prices and consumer sentiment to job prospects.

House prices in the 20 biggest cities in the United States fell by 12.7 per cent year-on-year in February, greater than expected, according to the latest S&P/Case-Shiller home price index, released yesterday. This is the biggest decline since the index began in 2001.

The house price data was published as RealtyTrac reported that house foreclosures had jumped by 23 per cent in the first quarter, against the fourth quarter of last year, and had more than doubled from the year before. One in every 194 households received a notice of default, auction sale or bank repossession in January, February and March, in the seventh consecutive quarter of rising foreclosures.

In another sign of just how much stress the housing market has put the balance sheets of global banks under, Citigroup announced plans last night to raise a further $3 billion of cash through the sale of new common stock. This is in addition to the $6 billion America’s biggest bank amassed last week and brings to at least $39 billion the total it has raised since November.

Meanwhile, Countrywide Financial, once America’s biggest mortgage lender, reported a first-quarter loss of $893 million, much larger than expected, as the group reeled from $3 billion of writedowns and bad loan charges.

Ethan Harris, chief US economist at Lehman Brothers, said: “The data shows that the consumer is under a huge storm. People have got used to bad housing numbers, but the declines continue to defy expectations and the rate of decline is alarming.”

Rob Carnell, an ING economist, said: “There is no sign of US house prices bottoming.”

In an address to Congress, President Bush acknowledged that “it’s a tough time for our economy”, although he stopped short of calling it a recession for fear, analysts said, of inducing further panic in the markets. “Many Americans are understandably anxious about issues affecting their pocketbook, from gas and food prices to mortgage and tuition bills,” Mr Bush said.

He backed a proposal by John McCain, the Republican presidential candidate, that would suspend taxes on petrol and diesel over the summer. This move would cut America’s tax bill by about $6.5 billion, according to Mr Harris. He did not expect the short-term elimination of petrol taxes to make much difference to the economy, but he described the broader $110 billion tax rebate as a “double latte” injection. He estimated that about 40 per cent of it would be spent in the next six months, amounting to an injection of nearly $50 billion. However, he believed that the longer-term prospects for the economy were poor because of the scarcity of credit and the outlook for the housing market.

Separate data released yesterday showed that US consumer confidence had fallen to its lowest in five years this month, as the Conference Board’s confidence index declined to 62.3, from a revised 65.9 in March.

Fed reaction

— The run of unpleasant economic news yesterday made a quarter-point cut in interest rates at the US Federal Reserve meeting today even more likely, according to Carl Weinberg, of High Frequency Economics in New York

— Mr Weinberg expects the Fed, which has cut the base lending rate by three percentage points — to 2.25 per cent — since September, to knock it down to 1.5 per cent over its next three meetings

— He said: “Tuesday was an ugly day. The preponderance of bad news comes after a few days in which people had been thinking: ‘Maybe the Fed is done’, and has made them rethink”

— The Federal Reserve will announce its latest interest rate decision at 2.30pm

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