Home Depot, a US retailer of home appliances, also announced it was to cut 7,000 jobs and close its smaller Expo chain as the slumping US economy continues to hit the nation's housing market.
General Motors, the struggling US car-maker, also said it was cutting a further 2,000 jobs.
The job losses at Caterpillar, which amount to about 18 per cent of the firm's entire workforce, will be accompanied by freezes in overtime and salaries, the firm said.
The Illinois-based company blamed the losses on a fall in demand and declining commodity prices along with current poor market conditions.
The job losses come as the US senate confirmed Timothy Geithner, former chief of the New York Federal Reserve Bank, as the new US treasury secretary.
Geithner, who was sworn in to the post on Monday, will have one of the toughest jobs in the new Obama administration as it tries to restore confidence in the US economy.
Al Jazeera's John Terrett says the job cuts were happening because US firms are currently in the middle of reporting fourth quarter results and many US firms are reporting profits sharply down or even financial losses.
|Caterpillar blames the job cuts on falling
demand for construction equipment [Reuters]
"[This] is leading firms' chief financial officers to argue that they cannot keep the same numbers of staff," he said.
"This is a country where social provision is limited and a job means a lot," he added.
Obama has said he hopes that the stimulus plan, can be implemented by mid-February, but some Republicans have argued that the administration's stimulus package is too large and does not include new tax cuts.
Although Republicans do not have enough votes in the House of Representatives or the US senate to defeat the bill, they could still stall it for several weeks.
The House is expected to vote on the package bill on Wednesday.
Obama said on Monday the government owes it to "every American'' to act with a
"sense of urgency'' and "common purpose" on the bill.
The US president who has said he hopes to create 2.5 million green jobs, also announced action to allow states to further curb fuel emssions.
Obama said he wanted to combine the plans for greater fuel efficiency with new technology to help create jobs.
|Geithner has been confirmed as treasury secretary [GALLO/GETTY]
Caterpillar, which employs more than 112,000 people worldwide, has expanded dramatically in recent years, driven partly by booming construction demand in developing countries, particularly in Asia.
However, demand for its heavy equipment has plunged with the weakening global economy.
In addition to the job cuts, the firm said it planned to slash executive compensation by up to 50 per cent and offer buyouts to US-based employees.
Investors are hoping that plans by Obama to implement a US-wide infrastructure spending programme will help boost demand for road-building and other equipment made by Caterpillar.
However, analysts say the plan may have little impact on equipment demand in the short term and that the proposed figures would not be enough given steep declines in the US construction market.
A total of 2.6 million US jobs were lost in 2008, the largest slump in employment since a 2.75 million drop in 1945, the US department of labour said earlier this month.