US retail sales slowed last month as concerns mounted about the economic impact of the downturn in the housing sector and turbulence in financial markets.

Purchases were weaker than expected as sales growth slowed to 0.3 per cent from 0.5 per cent, the commerce department said.

The surprise slowdown in sales added to fears that US households will curtail spending as house prices weaken and borrowing conditions tighten.

Stocks fell and bond yields slid as investors priced in a greater likelihood of aggressive interest rate cuts by the Federal Reserve, starting next week. The yield on the benchmark 10-year Treasury bond fell to 4.42 per cent from 4.47 per cent.

“Recent financial distress and gradual slowing in the US economy are now limiting consumer resilience,” said Peter Kretzmer, an economist at Bank of ­America.

The slowdown in purchases was felt most by building supply stores, clothing retailers and service stations, the department said. But carmakers appeared to attract buyers amid a price war.

“The global economy appears to be at a turning point,” said Paul Sheard, an economist at Lehman Brothers, adding it had been hit by “two related shocks”.

“First, the US housing recession has turned out to be considerably worse than we envisaged...Secondly, the subprime mortgage meltdown has triggered a broad sell-off across capital markets, with incipient elements of financial contagion and panic.”

He added the “strong interactions between these spheres make for an extremely uncertain medium-term economic and financial outlook.”

“The key uncertainty revolves around how long and how severe the US housing recession turns out to be and whether it tips the US economy into, or close to, recession,” he said.