Washington - US stocks dropped on Friday, closing out a wild week that saw most major indices make strong gains amid uncertainty and recessionary fears among US investors.

US stocks had been up as much as 4 per cent earlier in the trading day but were struck with a late sell-off - a common trend during the ongoing financial crisis.

The Commerce Department reported that construction of single homes fell to a 26-year low in September, signalling the housing downturn at the heart of the financial turmoil has yet to reach bottom.

Housing starts fell 6.3 per cent from August to 817,000. Shares of homebuilders Caterpillar Inc and DR Horton Inc both dropped more than 7 per cent.

An index of consumer confidence meanwhile dropped to a historic low. The Reuters/University of Michigan preliminary index of consumer sentiment stood at 57.5 in October - the lowest on record - from 70.3 in September. That compares with an average of 85.6 last year.

The depressing economic news offset billionaire Warren Buffett's advice Friday that now was the time to buy US shares.

"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful," Buffett, one of the world's richest men, wrote in the New York Times. "Most certainly, fear is now widespread."

The Dow Jones Industrial Average fell 127.04 points, or 1.41 per cent to 8,852.22. The broader Standard & Poor's 500 was down 5.88 points or 0.62 per cent to 940.55. The technology-heavy Nasdaq Composite Index dropped 6.42 points, or 0.37 per cent, 1,711.29.

Stocks have been on a roller-coaster ride all week as government plans to guarantee bank loans and buy up shares in financial institutions competed for attention with increasingly dire economic indicators.

For the week, the Dow climbed 4.8 per cent, its largest weekly gain since 2003, and the S&P rose 4.6 per cent, the most since February.

On the currency markets, the dollar edged up against the Japanese yen to 101.69 from 101.64 yen on Thursday and rose against the euro to 74.57 euro cents from 74.29 euro cents. (dpa)