The U.S. Postal Service on Tuesday said it lost $1.7 billion for the fiscal year ended September as the Sept. 11 attacks and a slumping economy caused mail volume to fall for the first time in a decade.

The loss for the fiscal year dwarfs a $199 million shortfall a year earlier.

Mail volume fell 420 million pieces to 207.5 billion with deliveries declining across all categories of mail except first class, which rose a meager one-tenth of one percent.

"The combined effects of (Sept. 11 and a weak economy) have had a severe and profound effect on the Postal Service," said Robert Rider, chairman of the Postal Service's Board of Governors.

The financial condition of the post office was already shaky before the Sept. 11 attacks by hijacked airliners, which disrupted deliveries by delaying transport at home and abroad, and the discovery of anthrax-contaminated mail that began in October.

Competition from electronic mail, rising expenses and a smaller-than-expected increase in stamp prices earlier this year had already combined to pinch finances.

Now the post office faces new costs from the anthrax threat as it scrambles to ensure workers' safety and install new technology to sanitize the mail.

"The last eight weeks have been the most difficult in our history," Postmaster General John Potter said.

Potter told Congress last month that the service needed an immediate $2 billion to cover lost revenues and saw at least $3 billion in costs for cleaning up anthrax spores, purchasing mail-sanitizing equipment and instituting other preventive measures.

The post office is continuing to explore the effectiveness of several irradiation and gas sanitation methods to clean mail.

Potter said he and other postal officials have been in "regular contact" with members of Congress and the Bush administration, and they remain confident the extraordinary costs incurred after Sept. 11 will be addressed.

The Postal Service said it financial woes could linger well into next year.

It was already on track to lose an estimated $1.35 billion in its 2002 fiscal year prior to the attacks in Washington and New York, and has applied for a 3-cent increase in the price of a regular stamp.

The board is seeking a decision on the postage increase by December 28 so it can pursue other options to shore up its financial situation if necessary.

Postage increases must be approved by the independent Postal Rate Commission.