The Dow Jones Industrial Average slumped 130.62 points (1.19 per cent) to 10,891.44 and the Nasdaq shed 48.05 points (2.20 per cent) to 2,138.52 in the first five minutes.

The broad-market Stnadard & Poor's 500 index dropped 19.81 points (1.64 per cent) to 1,189.37.

The market pulled back after a rally on Thursday on hopes of an agreement on a proposed US$700 billion (S$996 billion) plan to help shore up the banking sector drowning in mortgage losses. But those hopes appeared to fade later as talks stalled.

Separately, the US government on Thursday closed struggling Washington Mutual, one of the country's largest savings and loans banks, allowing JPMorgan Chase to buy its operations for US$1.9 billion.

'Wall Street continues to be riveted on the progress of the financial-mortgage plan through Congress,' said Fred Dickson at DA Davidson & Co.

'Right now, Wall Street will have to digest the fact that Congress cannot agree on the structure of a rescue plan with time ticking down on the ability of the banking system to obtain, then provide normal levels of funding to maintain normal economic activity.' -- AFP