President Barack Obama revealed his latest plan to boost the American economy, as fresh swathes of depressing property and industrial data was released by US Government departments.

The President promised to spend up to $275 billion in stem plummeting house prices, just a day after signing off a $787 billion economic stimulus bill.

Today’s cash injection was designed to save up to nine million homeowners from foreclosure, something that was striking at the heart of the country's middle class, President Obama said.

"The American dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighbourhoods," he told an audience in Mesa, Arizona.

But financial markets, which began to slide as the President began talking, were unenthusiastic about the latest bailout. Within 30 minutes of his speech, the Dow Jones Industrial Average was 0.18 per cent higher at 7,565.91 points and the S&P 500 was 0.13 per cent up at 790.16.

The Government will allow up to five million homeowners in negative equity to renegotiate their mortgages with Fannie Mae and Freddie Mac, the Government-controlled lenders.

Fannie and Freddie had previously not been permitted to change the terms of mortgages worth more than 80 per cent of a property's value, ruling out any assistance for borrowers whose home valued had plunged in the property crisis.

President Obama said that scrapping the 80 per cent rule would cost taxpayers nothing because, although mortgage repayments to Fannie and Freddie would fall, expensive foreclosures would also drop.

A further three million to four million homeowners with sub-prime mortgages who are at risk of foreclosure will be able to change their repayment terms so that their monthly payments are cut.

The Government will offer $75 billion worth of incentives for lenders to agree new terms with struggling customers.

President Obama emphasised that assistance would not be extended to property speculators who knowingly took out unaffordable mortgages.

The aid is aimed as "rescuing families who have played by the rules and acted responsibly", he said.

Just under 10 per cent of all US mortgages were in arrears or foreclosure at the end of last year, according to the Mortgage Bankers Association. Each foreclosure cuts about $6,000 from the value of neighbouring homes, fuelling the property market's downward spiral.

Figures released by the Commerce Department underlined the sector's difficulties. New housing starts and building permits applications fell to record lows in January as builders struggled to get rid of a glut of unsold houses.

The Commerce Department said that housing starts plunged 16.8 per cent in January to 466,000 units, the lowest number since records began in 1959. This was the biggest percentage drop since January 1994.

The number of permits issued for new buildings fell 4.8 per cent to 521,000 units, also an all-time low. Both figures were well below analysts' expectations.

Industrial output also slid in January or the sixth time in the past seven months. The Federal Reserve said that production by factories, mines and utilities was down 1.8 per cent last month, on top of a revised decrease of 2.4 per cent in December, driven by plunging output at the car makers.

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