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Apple on Tuesday laid out ambitious plans to broaden its early lead in the digital entertainment business, announcing an iPod mobile phone and an Apple TV set-top box that together could extend the US technology company's reach into big new consumer electronics markets.

Speaking at Apple's annual MacWorld trade show in San Francisco, Steve Jobs, chief executive, claimed the widely anticipated cellular device, the iPhone, represented a breakthrough.

"Apple is going to reinvent the phone," he declared, showing off a thin, handheld device with a 3.5-inch screen that displays touch-screen controls.

Describing the gadget as "the ultimate digital device", Mr Jobs said it would play music and video, display e-mails and act as a handset for web browsing.

The iPhone's launch, scheduled for June, marks an attempt to reshape a category of mobile phone that has caused trouble for other technology and mobile phone companies in the past.

The announcement hit rivals, with shares of Asian handset makers falling sharply on Wednesday morning on concerns of increasing competition. LG Electronics, Asia’s second largest handset maker, dropped 3.44 per cent by late morning trading, while Samsung Electronics, it’s bigger rival, fell 1.54 per cent.

In spite of similar big promises for other multi-function devices, "smart phones" remain only a small part of the mobile business.

The iPhone will cost from $499 (£257) and will go on sale in the US in June, with European sales to begin in the second half of this year and Asia in 2008, Apple said.

The Apple TV set-top box, with a 40Gb hard drive, will be available in February for $299.

Mr Jobs said Apple hoped to corner 1 per cent of the global handset market by 2008, a goal that would mean sales of 10m iPhone units.

The new products, which come as Mr Jobs continues to face scrutiny for his role in options backdating at the company, sent shares in Apple up 6.4 per cent to $91.12 by mid-afternoon in New York.

In a further sign of the company's transition, Mr Jobs announced that Apple Computer would henceforth be known simply as "Apple".

Apple's bid to tackle the 1bn-units-a-year mobile handset market is its most ambitious move yet outside its core business of computers.

Mr Jobs said Apple had agreed an exclusive partnership with Cingular, the mobile operator, that would provide mobile service to the phones in the US.

The phones will feature applications from leading internet search groups, including built-in functionality for Google's maps service, and a free "push" e-mail service that sends messages from customers' Yahoo email accounts to their phones.

Stan Sigman, chief executive of Cingular, now a part of AT&T, said the deal to distribute the iPhone, first discussed two years ago, amounted to a "unique partnership" in the industry.

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