The Dow Jones Industrial Average dropped 103.40 points (0.80 per cent) to 12,749.69 in the first exchanges, reversing course after a two-day rally.

The tech-dominated Nasdaq composite shed 20.24 points (0.81 per cent) to 2,468.28 and the Standard & Poor's 500 broad-market index retreated 11.21 points (0.79 per cent) to 1,409.12.

The market was mulling a warning from American Express late Thursday that 'it is seeing signs of a weaker US economy,' with higher credit card delinquencies, forcing the firm to set aside 440 million dollars (S$630.28 million) for write-offs.

The warning overshadowed a deal announced early on Friday by Bank of America to buy Countrywide Financial in a four-billion-dollar stock swap that rescues the nation's largest mortgage lender from near-bankruptcy.

Fred Dickson at DA Davidson & Co. said the market is worried that the worst is not over for the banking and financial sector, and that Citigroup and Merrill Lynch will announce deeper write-offs from mortgage losses.

'As seen in the American Express announcement today, consumers now are having trouble paying their credit cards on time,' he said.

'The buyout of Countrywide does solve one major problem in the troubled home lending market, but others remain. Our sense is that there will be more bailout mergers of severely troubled mortgage lenders before this is over.' -- AFP