The Dow Jones Industrial Average sank 230.50 point, or 2.13 per cent, to 10,600.57 and the tech-heavy Nasdaq dropped 55.42 points, 2.68 per cent, to 2,013.98 at 1445 GMT.

The Standard & Poor's 500 declined 29.71 points, 2.56 per cent, to 1,131.35.

The market remained skittish about the widening global banking crisis even after the Senate approved a US$700-billion (S$1 trillion) financial rescue package with some additional tax breaks and additions and sent it back to the House of Representatives, which rejected a similar measure Monday.

'Despite the fact that it passed overwhelmingly in the Senate, its passage isn't guaranteed in the House,' said John Wilson, equity strategist at Morgan Keegan.

'I would expect the financial markets to breathe a sigh of relief when the (the bill) passes, but I don't expect the clouds to part and a host of angels to appear in the heavens singing hallelujahs. It will be a start, but there is a lot to work through and a lot that is unknown.'

Patrick O'Hare at Briefing.com cited 'some uncertainty as to whether the recent add-ons will do more harm than good and stand in the way of a yes vote in the House'.

Mr O'Hare said the decision by the European Central Bank to hold interest rates steady also sent a chill into markets worried about a deepening credit crisis.

'The recognition that short-term funding markets remain under pressure and the news that the European Central Bank left its key lending rate unchanged at 4.25 percent have compounded the economic concerns,' he said.

'There just isn't any sense of closure for the market on a number of fronts right now. Accordingly, it can be expected to move in erratic fashion as participants sort through things.'

On the economic front, news of a jump in weekly jobless claims to 497,000 highlighted ongoing US economic worries, although some analysts said this was related to recent hurricanes.

A separate report showed a 4.0 per cent drop in August factory orders. John Ryding at RDQ Economics said this suggests the economy 'probably contracted significantly in the third quarter and the recession appears to be deepening'.

Among key stocks, General Electric slid 9.27 per cent to US$22.23 after pricing its new share offering at Us$22.25, well below the closing price on Wednesday.

ConocoPhillips shed 3.68 per cent to US$68.10 after the oil and gas giant estimated the cost of hurricane damage to its operations at Us$200 million.

Merck dipped 0.28 per cent to US$32.00 dollars after dropping plans to seek approval to market its Taranabant drug for obesity due to adverse effects in clinical trials.

Bonds gained on a renewed flight to safety. The yield on the 10-year US Treasury bond fell to 3.674 per cent against 3.768 per cent on Wednesday and that on the 30-year bond declined to 4.157 per cent against 4.248 per cent. Bond yields and prices move in opposite directions. -- AFP