Washington - US stocks dropped Friday over concerns that that the 700-billion-dollar rescue plan approved earlier in the day by the House of Representatives would not be enough to loosen up credit markets and prevent a recession.

The House voted by a resounding 263-171 in favour after rejecting an earlier version of the bill by 228-205 on Monday. The Senate approved the same package earlier this week and the bill has been signed by President George W Bush, who had urged the House to reconsider or face a long and painful recession.

Major US stock indices were up more than 1 per cent shortly after the vote, but slid by closing.

The broad-based Standard & Poor's 500 Index dropped 15.05 points, or 1.35 per cent, to 1,099.23. The Dow Jones index of blue chips fell 157.47 points, or 1.50 per cent, to 10,325.38. The Nasdaq high tech composite index slid 29.33 points, or 1.48 per cent, to 1,947.39.

JP Morgan Chase; Lennar Corp, the second-largest home builder; and CB Richard Ellis Group Inc, the largest commercial real estate brokerage; fell more than 7 per cent, Bloomberg financial news reported.

Citigroup fell by 18 per cent, which is its steepest drop since 1988, after fourth-largest US bank Wachovia Corp rejected its acquisition offer and Wells Fargo bank entered the bidding.

Wells Fargo presented Wachovia with a signed and board-approved offer to buy Wachovia as an intact company in a stock-for-stock merger which could be carried out without government help.

Wachovia said it was recommending to shareholders to accept the Wells Fargo offer, in which each share of Wachovia common stock would be exchanged for 0.1991 shares of Wells Fargo common stock, representing a value of 7 dollars per share, based on Wells Fargo's closing stock price on Thursday.

The development came at the end of week in which earlier on, Wachovia had been negotiating with Citigroup for an acquisition deal that would have been supervised by the Federal Deposit Insurance Corporation and would entail help from the government.

US Secretary of Treasury Henry Paulson anticipated that credit would loosen up if Congress passed the financial rescue plan, under which the government will buy up mortgage assets that have gone sour and drained the system of credit.

After the House vote, Federal Reserve Chairman Ben Bernanke said, "The legislation is a critical step toward stabilizing our financial markets and ensuring an uninterrupted flow of credit to households and businesses.

"The Federal Reserve will continue to work closely with the Treasury as it undertakes these new initiatives. We will continue to use all of the powers at our disposal to mitigate credit market disruptions and to foster a strong, vibrant economy."

In other financial news, the US jobless rate remained steady at a rate of 6.1 per cent in September, unchanged from the month before, but non-farm payrolls have shed another 159,000 jobs and employment continued to fall in construction, manufacturing and retail trade, the US Department of Labour said earlier Friday. (dpa)