US stocks fell heavily on Friday local time after Congress passed a huge financial rescue plan, as investors remained nervous about a global credit squeeze and the weak economy.
Markets made a sharp reversal late in the day and the Dow Jones industrial average fell 157.47 points (1.5%) to end at 10,325.38, capping a week that saw blue chip shares slide more than 7%.
The Nasdaq slumped 29.33 points (1.48%) to 1,947.39 and Standard & Poor's 500 index shed 15.05 points (1.35%) to 1,099.23.
Global markets, including Wall Street, had rallied just before US lawmakers approved the $US700-billion rescue, but the mood soured after the measure was passed and signed by President George Bush.
"The economy was toast without this package," said John Ogg, an analyst at financial website 24/7 Wall Street.
"But the economy is still likely going to suffer and enter into a recession ... This bill may not be enough and it may already be too late."
Peter Cohan of the consulting firm Peter Cohan & Associates said the real economic problem was a lack of trust in the financial system.
US employers cut 159,000 jobs lin September, the steepest decline in more than five years, and the latest evidence that the economy may be entering a recession.
Wells Fargo buys Wachovia
The market was surprised by announcement that Wells Fargo was buying rival Wachovia for $US15.1bn in stock, ending a government-backed plan for Citigroup to take over Wachovia's banking operations.
But shortly after the announcement, US bank regulators said they had not yet reviewed the deal and Citigroup said the Wachovia was in "breach" of its earlier agreement.
Wells Fargo shares gave back early gains and fell 1.7% to $US34.56 while Wachovia surged 58% to $US6.21 on the news. Citi shares slid 18% to $US18.35.
Meanwhile insurance giant AIG said it was readying a plan to repay a government bailout by selling non-core assets. Shares of AIG, or American International Group, reversed early gains and fell 3.5% to $US3.86.
European shares gain
European share prices closed with solid gains before the US bill passed.
The FTSEurofirst 300 index closed up 3.01% on the day. On the week, the index lost 1.4%.
MSCI's main world equity index fell 0.48% on Friday.
Asia-Pacific markets fall
A darkening economic outlook fuelled by the global credit crisis dragged markets in the Asia-Pacific region lower on Friday ahead of the vote by the US Congress.
The New Zealand share market fell 81 points, or 2.5%, to close at 3152 on turnover of $86 million.
Athe close of trade, top stock Telecom was down 6 cents to $2.89, while Contact Energy fell 27c to $7.61 and Fletcher Building shed 37c to $6.83.
Auckland Airport was down 5c to $2.02. Fisher and Paykel Appliances fell 4c to $1.66. Pumpkin Patch was down 3c to $1.30.
The Australian share market closed lower. At the 1615 AEST close, the benchmark S&P/ASX200 was down 65.7 points, or 1.38%, at 4695.4, while the broader All Ordinaries had lost 71.3 points, or 1.49%, to 4702.8.
At 1633 AEST, spot gold was trading in Sydney at $US843.00 an ounce, down $US27.90 on Thursday's close of $US870.90.
Japanese share prices closed down 1.94% at a new three-year low. The Tokyo Stock Exchange's benchmark Nikkei-225 index lost 216.62 points to 10,938.14, ending below the key 11,000 points level for the first time since May 2005.
Oil prices drop
Oil fell on Friday, dragged down as demand concerns outweighed optimism after the rescue bill was signed into law.
US crude settled at $US93.88 a barrel, down 9 cents, after dropping $4.56 on Thursday on concerns about slumping demand.
London Brent crude settled at $US90.25 a barrel, down 31c.
High fuel prices and the wider economic crisis has hurt consumption in the top consumer, the United States, knocking crude off a record peak over $US147 a barrel struck in July.
Analysts said that while the bailout could help stem a more serious downturn in the economy, it was likely to do little to bolster flagging oil demand.
"We know that big picture demand is the big question at this point," said Tom Bentz, analyst at BNP Paribas Commodity Futures Inc in New York.