US stocks endured extreme volatility on Thursday as investors weighed downbeat economic and earnings data with signs that historic levels of strain in money markets had begun to ease.

The S&P 500 swung between gains that topped 1.9 per cent and losses of as much as 4.6 per cent, one session after the worst sell-off since 1987.

By mid afternoon in New York the benchmark index was down 0.5 per cent at 903.31, while the Dow Jones Industrial Average was down 0.1 per cent at 8,565.88. The technology-heavy Nasdaq Composite index stood 1 per cent higher at 1,622.15.

The Chicago Board Options Exchange Volatility index, known as Wall Street's "fear gauge", shot up as much as 17.2 per cent to pass yet another grim milestone, reaching above 80 for the first time in its 18-year history.

Stocks were pushed lower by industrial production figures that showed the worst monthly decline since 1974, while separate data showed "mid-Atlantic" regional factory activity had crashed to an 18-year low.

Financials led the declines, down 3.9 per cent, following a raft of heavy writedowns and losses from banks. Citigroup rose as much as 4 per cent but later tumbled to stand 4.9 per cent lower at $15.43 as investors weighed cost-cutting progress with writedowns of $4.4bn in the securities and banking division and weak revenues from its credit card unit.

Merrill Lynch fell 3.6 per cent to $17.59. The bank, which is being taken over by Bank of America, reported a worse-than-expected net loss of $7.5bn, mostly due to write­downs and credit losses on complex debt securities.

A host of regional banks also reported heavy losses. Bank of New York Mellon edged up 0.4 per cent to $29.37 after costs to bail out funds hurt by Lehman Brothers's bankruptcy dented third-quarter profits, which fell more than expected.

Huntington and BB&T - which also reported downbeat figures - added 3 per cent to $9.01 and lost 2.2 per cent to $31.46, respectively.

Insurers endured sharp declines after Fitch warned it may cut ratings on some. Genworth Financial and Hartford Financial Services dropped 11.5 per cent to $4.63 and 20.8 per cent to $25.94 respectively.

The falls came even though the rate at which banks lend to each other, measured by overnight dollar Libor, fell sharply.

Elsewhere, airlines managed gains even after Southwest Airlines reported its first quarterly net loss since 1991, as oil slid below $70 a barrel. Southwest climbed 4.7 per cent to $12.10, while Delta Air Lines advanced 16.5 per cent to $8.67. "The leverage from the plunge in fuel prices is huge," Credit Suisse said.

Peabody Energy was a stand-out winner in the energy sector, up 11.8 per cent to $28.42 on the back of well-received third-quarter figures.

Technology was up 0.2 per cent overall. Ebay fell 6.9 per cent to $14.27 after the online retailer forecast its first quarterly sales decline after the bell on Wednesday.

Google, International Business Machines and Advanced Micro Devices lost 3.6 per cent to $326.91, eased 0.3 per cent to $88.07 and fell 1.5 per cent to $3.85, respectively, ahead of results due later in the day.

Food groups were mixed after Hershey's results. The chocolate group, which rose 2.2 per cent to $33.71, boosted third-quarter profits but warned of slowing sales growth next year.

In industrials, United Technologies, Textron and Illinois Tool Works all signalled they were taking steps to cut costs. They added 0.2 per cent to $49.36, fell 2.3 per cent to $18.62 and edged 0.2 per cent higher to $33.75.

Harley-Davidson edged up 1.1 per cent to $24.79 even after the motorcycle group warned of a slowdown in sales and cut its earnings guidance for the year.

Energy stocks fell as much as 5.6 per cent after data showed crude and gasoline inventories rose sharply last week. Chevron and ExxonMobil were down 5.3 per cent at $56.92 and 0.3 per cent at $62.52, respectively.

In other economic data, consumer prices were flat in September, while the number of workers filing new unemployment claims fell for a second consecutive time last week due in part to the reduced effect of hurricanes Ike and Gustav.