The selloff occurred after a Labor Department report showed US employers cut 63,000 positions in February, marking the biggest monthly loss in nonfarm payrolls in five years.

The Dow tumbled 145.23 points (1.21 percent) to 11,893.69, slumping to its lowest close since October 11, 2006.

The tech-dominated Nasdaq composite shed a lesser 8.01 points (0.36 percent) to 2,212.49 and the Standard & Poor's 500 broad-market index closed down 10.97 points (0.84 percent) at 1,293.37.

Traders blamed the market decline on the weak job report which renewed concerns the US economy could be on the verge of a recession, although some analysts believe the economy is already in a downturn.

US stock markets have fallen heavily in recent months in reaction to an ongoing housing market downturn, a widespread credit crunch and rocketing oil prices which hit a record 106.54 dollars per barrel Friday.

Job losses can now also be added firmly to that mix.

The worsening job picture provoked a reaction from US President George W. Bush who said: "Losing a job is painful, and I know Americans are concerned about our economy; so am I."

Bush voiced hope that a giant economic stimulus package would help kick start economic momentum.

"The payrolls report had recession written all over it," said Avery Shenfeld, a senior economist at CIBC World Markets.

In a bid to shore up market confidence, the Federal Reserve announced just before Wall Street opened for trading that it was making up to 200 billion dollars available to the stressed banking sector through a series of money auctions and loan programs.

The Fed hopes to soothe rattled credit markets by opening up its cash spigots in a bid to stop the financial markets gumming up.

Fed officials also likely read over the troubling job report before its official release.

"The Federal Reserve announced that it will increase the size of the TAF (Term Auction Facility) auctions to address the heightened liquidity pressures," Andrew Busch, a market analyst at BMO Capital Markets, said in a briefing note.

"They stand ready to do more if needed. They are acting because the credit markets have seized up," Busch said.

Bank stocks were mixed amid wider market losses.

Citigroup, which announced a major overhaul of its mortgage business on Thursday, saw its shares close down 1.2 percent at 20.91 dollars.

Bank of America's shares finished up 0.6 percent at 36.74 dollars and Merrill Lynch declined 1.5 percent to 45.19 dollars.

Credit jitters persisted as the Dutch stock market authorities announced they had suspended share trading in a troubled fund managed by the US private equity giant, the Carlyle Group.

The fund, Carlyle Capital Corporation, said some securities backed by real estate loans had been "liquidated" by investors who had bought them according to an agreement that Carlyle would ultimately buy them back.

Bond prices rose as some investors sought a safe haven from stocks. Yields on the 10-year US Treasury bond dropped to 3.541 percent from 3.622 percent Thursday and that on the 30-year bond fell to 4.541 percent against 4.579 percent.

Bond yields and prices move in opposite directions.

European markets were also scolded by the US job news.

London's FTSE 100 index shed 1.15 percent to close at 5,699.90, the Paris CAC 40 fell 1.26 percent to 4,618.96 and the Frankfurt Dax slipped 1.17 percent to 6,513.99.

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