US stocks fell and the S&P 500 closed at a 12-year low on Friday, after the government said it will take a large stake in ailing bank Citigroup's common shares, fanning fears it will increase its role in other major banks.
The decline closed out a grim month on Wall Street, with the Dow industrials hitting the lowest level since May 1997 as the blue-chip index fell for a sixth straight month.
Data showing the U.S. economy shrank at an annual rate of 6.2% last quarter also weighed on the market.
The Dow Jones industrial average dropped 119.15 points, or 1.66%, to 7,062.93. The Standard & Poor's 500 Index fell 17.74 points, or 2.36%, to 735.09. The Nasdaq Composite Index slipped 13.63 points, or 0.98%, to 1,377.84.
Citigroup shares tumbled 39% after the government said it will convert up to $US25 billion in the bank's preferred shares to common stock in a move that could dilute existing shareholders' ownership by 74%. The S&P financial index sank 8.1%.
Healthcare and drug companies, such as Merck & Co and Johnson & Johnson Inc, fell for a second day on Friday on worries that US President Barack Obama's budget proposal will strangle profits as the administration tries to rein in healthcare costs.
US stocks have lost $US10 trillion since peaking in October 2007.
Europe stocks slide
European shares fell on the Citigroup news and as a big loss at Lloyds Banking Group hit British banks.
Lloyds fell 22.3% after it unveiled a big loss for 2008 and said it had not yet finalized details of its plan to put billions of pounds of assets into a UK government-backed insurance scheme.
The FTSEurofirst 300 index of top European shares fell 1.78% to close at 719.40 points.
The STOXX 600, a broader index of European shares, fell 1.8%, with banks taking the most points off the index.
Pharmaceutical stocks, usually deemed defensive, were big losers, falling on US budget proposals to curb costs.
AstraZeneca, Sanofi-Aventis and Novartis fell between 3.9% and 6.5%.
Around Europe, UK's FTSE 100 index, Germany's DAX index and France's CAC 40 closed between 1.5% percent and 2.5% percent lower.