De Beers, the diamond group, said that the worsening economic environment in the United States hit sales last year and gave warning that the world's largest jewellery market was likely to get worse in 2008.

The company, which controls 40percent of the diamond market, reported yesterday that sales fell by 3percent to $6.8billion (£3.5billion) in 2007. It said that the period leading up to Christmas in the US was particularly poor because consumers “reined in spending amid financial concerns”.

The outlook for the US market in 2008 was “tempered by a high level of uncertainty”, and De Beers expects the worsening economic climate to continue to suppress the demand for diamonds.

The effect of the US slump has been mitigated by growing diamond demand in China, India and the Middle East. De Beers has also benefited from a limited new supply of diamonds, which has kept the price of the stones up despite the drop in US sales.

De Beers reported that its underlying profits grew by 14 per cent to $483million last year. Anglo American, which owns 45 per cent of the diamond group, will register earnings of $239million from its holding. However, net earnings fell to a $521million loss after the company took a $965million impairment to cover a revaluation of its Canadian assets to reflect the stronger Canadian dollar.

In the past year the company sold a number of its older South African mines where the diamond content of the rock had fallen. This included the famous Cullinan mine, where the world's largest diamond was discovered in 1905.

De Beers increased capital expenditure by 18 per cent to $1.1billion last year in an effort to replace lost production. One of the assets it added last year was the Peace in Africa, a mining vessel that will vacuum the seabed off South Africa to pick up diamond-bearing rock. The ship is expected to produce 200,000 carats a year. Similar vacuuming operations off the coast of Namibia, a joint venture with the Namibian Government, produced 2.2million carats last year.

De Beers also reported production of 51.1million carats during 2007, in line with the year before. The company said that power problems in South Africa could reduce production by about 10 per cent this year.

Like all other miners in South Africa, De Beers was forced to cut power consumption last month to 80percent of its normal level to prevent blackouts. The company's mines are still operating at 90 per cent of normal power and are changing operations to tackle the problem.

Nicky Oppenheimer, the De Beers chairman, said: “This is not a situation where we need to start blaming people. Everyone in southern Africa needs to come together to resolve this situation.”

De Beers also confirmed that it was moving some of its London-based operations to Africa as part of an agreement with partner governments. Diamond sorting, examining rough stones and packaging them by quality for buyers, will now be done in the countries where the stones originate.

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