US stocks have slumped a day after Barack Obama, the US president, pledged to rebuild the nation's battered economy.
The Dow Jones Industrial Average fell 80.05 points, or 1.09 per cent, to end the trading day at 7,270.89, amid continued uneasiness about the steps the government will take to help struggling banks and the US economy.
In addition, homes sales in the US fell by 5.3 per cent in January, their lowest level in almost 12 years, the National Association of Realtors said.
The slump also comes as Ben Bernanke, chairman of the US Federal Reserve, testified before congress for a second day after saying on Tuesday that the US economy could remain in a recession until 2010.
On Tuesday Obama pledged that the US will emerge from the economic crisis gripping the country "stronger than before" in his first address to the US congress as president.
Since taking office in January, Obama has pushed through a $787bn stimulus plan designed to revive the US economy through job creation and tax cuts.
"Now is the time to jumpstart job creation, re-start lending, and invest in areas like energy, healthcare, and education that will grow our economy, even as we make hard choices to bring our deficit down," he said.
He also promised greater oversight of the spending of public funds after widespread criticism of Wall Street executives who took bonuses while receiving government aid from last year's $700bn bailout.
"Wall Street may be more comforted by an approach that gives banks bailouts with no strings attached, and that holds nobody accountable for their reckless decisions," he said.
The Obama administration is planning to begin its "stress tests" on some of the US's largest banks on Wednesday to determine their stability, including Citigroup, Bank of America and around 12 other institutions that have received money from the $700 billion government bailout fund passed last year, the Associated Press reported.
The tests are designed to help determine whether banks have enough capital to withstand any further economic stresses within the next two years.
Testifying in front of the house finance committee on Wednesday, Bernanke said that nationalisation of some troubled US banks was not needed, after speculation over the fate of some of the US's largest financial institutions caused US stocks to waver.
"Nationalisation to my mind is when the government seizes the bank, zeros out the shareholders and begins to manage and run the bank, and we don't plan anything like that," he said.
He also defended the actions of the Federal Reserve over the economic crisis, saying he believed the reserve's swift action meant the US avoided a "collapse of the global financial system which would have led us into a truly deep and very protracted economic crisis" last October.
|The US housing market collapse contributed
to the current economic crisis [EPA]
Meanwhile the National Association of Realtors said sales of existing homes fell 5.3 percent to an annual rate of 4.49 million in January, from 4.74 million units in December, the worst figures since July 1997.
Analysts had expected the sales figures to rise.
In addition, the average sales price for a US homes fell to $170,300, down 14.8 per cent from $199,800 a year earlier, the lowest price since March 2003 and the second-largest drop on record.
The group said it estimated that about 45 per cent of sales nationwide are foreclosures or other "distressed" property sales.
The US financial meltdown was triggered in part by the subprime mortgage crisis, where people were granted mortgages they were unable to repay, sparking a wave of house foreclosures and debt.