Gaping US trade and budget deficits and a weak auction of government debt that pushed interest rates higher pointed to a bumpy road to recovery for the world's largest economy on Wednesday.

A Federal Reserve report noting businesses see some signs of moderation in the contraction, even though conditions were weak or deteriorated further in May, failed to ease anxiety about the economy.

Instead, financial markets found new reasons to worry that massive government spending and Fed cash infusions will lead to dangerous inflation and undercut any fledgling rebound.

A government bond auction pushed yields on the benchmark 10-year Treasury note above 4 per cent for the first time in eight months, suggesting investors want the government to pay a premium to finance its huge deficit.

US stocks ended little changed though, with the three month rally stalling on worry that rising interest rates could dampen consumer and business spending.