NEW YORK - US STOCKS plunged on Friday as glum corporate news and a weaker-than-expected report on US retail sales prompted renewed caution a day after a strong rally.

The Dow Jones Industrial Average sank 337.94 points (3.82 per cent) to close at 8,497.31, giving back most of Thursday's 552-point surge.

The Nasdaq composite fell 79.85 points (5.00 per cent) to 1,516.85 and the Standard & Poor's 500 index dropped 38.00 points (4.17 per cent) to 873.29.

Trade was volatile again with markets seeing a brief move into positive territory before selling pressures emerged. For the week, the Dow lost nearly five per cent and the Nasdaq slid almost eight per cent.

The mood sobered as the market braced for a summit of leaders of the Group of 20 on the economic crisis and weak forecasts came from Finnish telecom maker Nokia as well as US retailers JC Penney, Nordstrom, and Kohl's.

'Some slippage was to be expected after yesterday's big advance, but the discouraging news, including Federal Reserve chairman Ben Bernanke's remarks that the markets remain under 'severe strain', helped pressure US stocks deep into the red,' said Ms Colleen King at Schaeffer's Investment Research.

In Berlin, Mr Bernanke said that he and other central bankers were prepared to join forces to cement tentative improvements in world credit markets but that financial strains remained.

Meanwhile the Commerce Department said US retail sales tumbled a record 2.8 per cent in October as consumers hunkered down in the face of a sharply slowing economy.

The data was the latest in a string of weak economic reports suggesting the economy is heading for more pain.

'It turns out I haven't been pessimistic enough,' said Mr Scott Anderson, economist at Wells Fargo.

'The negative feedback from the bank credit losses, tighter credit conditions, and worsening economy have been more difficult to overcome than I expected.

'The current quarter is going to be terrible, and there isn't much Washington is going to be able to do about it. GDP growth in the fourth quarter is now on track to plunge 4.2 per cent on an annualised basis with no major sector left to hold up this 'wet noodle' of an economy.'

Among stocks in focus, Boeing fell 4.9 per cent to US$41.04 after the aircraft maker announced it would delay deliveries of some of its 747 jumbo jets.

Citigroup edged up 0.74 per cent to US$9.52 after heavy losses earlier in the week, as the banking giant confirmed executives had purchased 1.3 million shares as a sign of confidence.

Retailers were hit hard by the latest data and their own grim forecasts. JC Penney fell 10.4 per cent to US$17.27, Nordstrom slumped 9.4 per cent to 11.74 and Kohl's declined 4.8 per cent to 29.09.

Bonds gained on the caution in equities. The yield on the 10-year US Treasury bond fell to 3.750 per cent from 3.818 per cent on Thursday and that on the 30-year bond eased to 4.230 per cent against 4.333 per cent. Bond yields and prices move in opposite directions. -- AFP