US stocks endured extreme volatility on Thursday and a late afternoon rally pushed the market sharply higher, led by energy groups even as oil slid below $70 a barrel.

The S&P 500 fell as much as 1.9 per cent following the release of grim economic data but, in the last hour of trading, stocks had rebounded after the worst sell-off since 1987 in the previous session.

The benchmark index closed up 4.3 per cent at 946.43, while the Dow Jones Industrial Average was up 4.7 per cent at 8,979.26. The technology-heavy Nasdaq Composite index was up 5.5 per cent higher at 1,717.71.

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. It finished down 2.9 per cent at 67.25.

Stocks were pushed lower by economic data that showed industrial production endured the worst monthly decline since 1974, and factory activity in parts of the country had crashed to an 18-year low.

Consumer stocks were among the winners from the late afternoon rally as some traders bet that oil's slide below $70 could offer hard pressed Americans at least some relief.

Macy's closed up 16.1 per cent at $10.05 having fallen as much as 11.7 per cent. Oil's slide to an intraday low of $68.57 a barrel - while a symptom of global slowdown - could nonetheless "cash back into people's pockets," said Bill Stone, investment strategist at PNC Wealth Management.

Yet the energy sector - down as much as 8.1 per cent after data showed crude and gasoline inventories rose sharply last week - also rebounded and was up 7.8 by the close.

Financials were the laggards of the day, down 1.7 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 2 per cent lower at $15.90 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 rose 0.6 per cent to $18.35. 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 losses. Bank of New York Mellon rose 6.3 per cent to $31.08 even 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 10.2per cent to $9.48 and gained 3.4 per cent to $33.26, respectively.

Insurers endured sharp declines after Fitch warned it may cut ratings on some. Hartford Financial Services dropped 11.9 per cent to $28.86, 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 8 per cent to $12.49, while Delta Air Lines advanced 18.8 per cent to $8.64. "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 18.3 per cent to $28.68 on the back of well-received third-quarter figures.

Technology was up 4.8 per cent overall. Ebay fell 2.4 per cent to $14.97 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.

After the bell, the trio reported better than expected results and the shares bounced 8.2 per cent, 0.7 per cent and fell 2.9 per cent respectively.

Food groups were mixed after Hershey's results. The chocolate group, which rose 6.9 per cent to $35.24, 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 7.4 per cent to $52.88, fell 5.9 per cent to $20.19 and edged 4.9 per cent higher to $35.34.