The Dow Jones Industrial Average dropped 147.03 points (1.74 per cent) to 8,301.53 after the market open and the Nasdaq composite fell 22.30 points (1.44 per cent) to 1,524.16.

The broad-market Standard & Poor's 500 index shed 17.73 points (2.03 per cent) to 854.06.

'Stocks are extending losses in early trading after US retail sales fell much more than expected in December, confirming that the poor economic climate continues to depress consumer activity,' Charles Schwab & Co said in a report.

US retail sales in December plunged 2.7 per cent, more than twice market forecasts, as consumers snapped wallets shut amid the deepening recession, government data showed on Wednesday.

Analysts' consensus forecast was for a drop of 1.2 per cent in retail and food services sales.

It was the sixth straight month of falling retail sales amid tight credit, rising unemployment and growing economic worries. December sales were 9.8 per cent lower than in December 2007.

Confirmation that Citigroup has agreed to sell a controlling interest in Smith Barney to Morgan Stanley also did little to inspire market confidence over the health of the financial sector, experts said.

It was viewed 'more as a forced sale' in a bid to boost the bank's capital position, said Mr Patrick O'Hare of Briefing.com.

'That consideration, along with earnings warnings from (other companies), as well as a report that Deutsche Bank reported a fourth quarter loss of US$6.3 billion (S$9.4 billion), has weighed on sentiment in the early going,' he said.

'Worries about the financials continue to mount amid a profit warning from Deutsche Bank and talk that HSBC Holding may need to boost capital and cut its dividend,' Charles Schwab analysts said. -- AFP