The US government posted its largest budget gap in history in the just-ended 2003 fiscal year, $374.22 billion (€321 billion) in the red, the Treasury Department has said.

That broke the previous record of more than $290 billion in the 1992 budget year. As a percentage of the economy, the deficit totalled 3.5 per cent, the largest since 1993. In its final monthly budget statement for fiscal 2003, the Treasury also said the government posted a $26.38 billion surplus in September.

Administration officials warned the deficit, which they blame on sluggish government revenues and rising expenses related to the war on terrorism, may be even larger in the current 2004 budget year, which began on October 1st.

"Although the deficit is still projected to increase in 2004, and will likely exceed $500 billion even with a strengthening economy, we can put the deficit on a responsible downward path if we continue pro-growth economic policies and exercise responsible spending restraint," said Mr Joshua Bolten, who heads the White House's Office of Management and Budget.

Treasury Secretary Mr John Snow said a rebounding economy should help the budget going forward. "As the economy grows, government revenues will go up, which will help keep the deficit under control," he said..

The September numbers, while well below the administration's official forecast for a $455 billion budget gap, were close to Wall Street and Congressional Budget Office projections.

The record gap will likely fuel political bickering over the deficit. The previous record deficit was posted by President George W. Bush's father, and was a major issue in his losing bid for reelection in 1992.

"There's nothing here to cheer about," said Mr Tom Kahn, Democratic staff director for the House of Representatives Budget Committee.

"It's still by far the biggest deficit in American history."