Stocks wavered at the start of trading, seeking a direction after the previous session?s steep dive, then turned sharply lower after a disappointing report on manufacturing. Wednesday's drop, which took the Dow down 733 points, followed a stream of bad economic news that underscored the likelihood that the country is either in a recession or will be in one - and that the downturn will be severe.

It was clear from Thursday's trading that the market will continue having extreme reactions to any economic news.

Investors initially appeared cheered by a better-than-expected reading from the Labor Department on consumer prices. The flat reading on Sept's Consumer Price Index compares with Aug's 0.1 per cent decline, which was the first in nearly two years. The core index, which eliminates food and energy prices, rose 0.1 per cent.

Economists had been expecting CPI would rise to 0.1 per cent and that core CPI would increase 0.2 per cent. Investors are relieved to see any economic pressures ease on consumers.

Meanwhile, a weekly snapshot of the job market showed that first-time claims for unemployment declined last week. The Labor Department said claims for unemployment benefits fell 16,000 last week to a seasonally adjusted level of 461,000 - below the 475,000 that had been anticipated.

Still, total unemployment remains above economists often associate with recession.

But the Philadelphia Federal Reserve said regional manufacturing conditions weakened in Oct. The bank's regional index came in at a negative 37.5 compared with a positive 3.8 for Sept.

In midmorning trading, the Dow fell 247.94, or 2.9 per cent, to 8,329.97 after falling as much as 300.

Broader stock indicators declined in jittery trading. The Standard & Poor's 500 index fell 20.00, or 2.20 per cent, to 887.84, and the Nasdaq composite index fell 26.52, or 1.63 per cent, to 1,601.81.

Investors also were reviewing Citigroup Inc. third-quarter results. The bank posted its fourth straight quarterly loss due to credit-related troubles and cut another 11,000 jobs.

The company said it lost US$2.8 billion (S$4.15 billion), in the third quarter compared with a profit of US$2.2 billion a year earlier. The loss was narrower than Wall Street had expected. Citigroup fell 90 cents, or 5.5 per cent, to $15.33.

Merrill Lynch & Co., which recently agreed to be acquired by Citigroup Inc. rival Bank of America Corp., early on Thursday posted a net loss of US$5.1 billion. The loss was wider than analyst forecasts.

Merrill fell 41 cents, or 2.3 per cent, to US$17.83.

United Technologies Corp. said its third-quarter earnings rose 6 per cent following increased profits at Otis elevator, Sikorsky Aircraft and its other businesses.

The manufacturer's results came in ahead of Wall Street's forecast and UTC raised the low end of its 2008 profit forecast. UTC fell 44 cents to $48.81.

Because of investors' great anxiety about the economy, Wall Street is expected to remain extremely volatile, as it has been over the past month since the credit markets began tightening and stocks plunged.

The gyrations this week have been particularly intense, with the Dow industrials soaring 936 points Monday and falling 733 on Wednesday following a weak report on retail sales and a disheartening assessment of the economy from the Federal Reserve.

While the credit markets are performing better than they were last week given several unprecedented actions by governments around the world - including the decision to buy stakes in private banks - they are hardly operating normally.

Treasury bills, considered the safest assets around, remained in demand. The three-month Treasury bill on Thursday was yielding 0.25 per cent, higher than 0.20 per cent on Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.97 per cent from 3.98 per cent late on Wednesday.

The dollar was mixed against other major currencies. -- AP