An American forecasting group has predicted that rising interest rates will cause a drop in US car sales during 2006.

The Nation Automobile Dealers Association forecasted a 0.7 per cent fall in new vehicle sales from $16.947 million to $16.8 million.

Consumer spending in America has been constricted by interest rate hikes during the past 12 months, with the Federal Reserve raising them for the 14th consecutive time on January 31st.

"The affordability issue from rising interest rates takes some consumers out of the market," chief economist Paul Taylor told a news conference in Orlando.

"These are big-ticket items for consumers. They are going to be sensitive to interest rates."

Despite the gloomy predictions, American auto traders have been boosted by high consumer confidence, with luxury car sales performing especially well this quarter.

A decline in US sales would follow last year's drop in the European market, which also fell by 0.7 per cent.

Ÿ Adfero Ltd