The Dow Jones Industrial Average had lost 142.06 points (1.17 per cent) to 12,003.68 at 1411 GMT after diving over 200 points in earlier frenzied trading.

The tech-heavy Nasdaq composite lost 26.49 points (1.17 per cent) to 2,237.12 while the broad-market Standard & Poor's (S&P) 500 index was down 19.29 points (1.47 per cent) at 1,296.19.

Traders said news that JPMorgan Chase & Co and the Federal Reserve Bank of New York had teamed up to provide emergency financing to Bear Stearns for an initial period of 28 days had rattled investors.

The market gyrations occurred amid a widening credit crunch sweeping the banking sector which has heigthened concerns the US economy could fall into a recession.

Traders said trading would likely remain volatile, however, due to the credit crunch and increased fears of a US recession. They said a relatively benign inflation report from the government had helped support stocks in opening deals.

JPMorgan Chase & Co announced just before the market opened that it was teaming up with the Federal Reserve Bank of New York to provide emergency financing to the US investment bank Bear Stearns for an initial period of 28 days.

Bear Stearns, like its rival banks, has sustained heavy losses from its US mortgage investments and other securities investments.

Its former chief executive James Cayne resigned in January after the bank revealed writedowns of around 1.2 billion dollars (S$1.66 billion) on soured mortgage investments during the fourth quarter.

Market participants meanwhile said they were awaiting to hear from US President George W. Bush who is due to make a speech on the economy later Friday morning in New York. -- AFP