The Dow Jones Industrial Average sank 250.89 points (3.41 per cent) to 7,114.78, crashing below its November bear market low and hitting its lowest close since May 1997.

The broad-market Standard & Poor's 500 index shed 26.72 points (3.47 per cent) to 743.33, its lowest finish since April 1997.

The tech-heavy Nasdaq composite slid 53.51 points (3.71 per cent) to 1,387.72, its lowest level since November 2008.

Market action came as US authorities unveiled plans for a "capital buffer" for ailing banks but said they would seek to avoid nationalization.

Marc Pado, a stock analyst at Cantor Fitzgerald, said the market had hoped for further details on the Obama administration's plan to rescue the banking system.

"The market is still having trouble with the idea that we're not getting the clarity that its needs for the financial system," he said.