The New York stock market plunged 444 points after bail-out plans for America's near-bust car industry were left in tatters.

The Dow Jones Industrial Average sank by more than 5 per cent amid a showdown between the outgoing Republican Administration under President Bush and the incoming Democrat Administration led by Barack Obama, the US President Elect who takes office on January 20.

Wall Street has tumbled for two days in a row, having fallen 873 points since Wednesday morning, as traders braced themselves for America's car industry to collapse. The Dow Jones index, which closed at 7552.

While both sides of Capitol Hill bickered over the terms and conditions of a possible $25 billion emergency loan, the New York stock market plummeted amid fears that Washington will fail to devise, vote on, and force through rescue funds in time to save General Motors, Chrysler, and Ford.

General Motors and Chrysler have both said this week that they require immediate federal aid to survive because car sales have collapsed in the US. Rick Wagoner, the chairman of General Motors, this month warned that his company could run out of money by Christmas.

Lack of consensus in Washington over how to help the car companies has left Wall Street convinced that all three will file for Chapter 11 bankruptcy protection before the end of the year.

In the morning, a handful of senators from the states of Michigan, Ohio and Missouri - drawn from the Democrat and Republican parties - said that they had agreed to present a bill to lawmakers in Washington to allow the car companies access to $25 billion of emergency funds. The three states represent the traditional car manufacturing heartland of America and benefit from the bulk of the 3 million jobs that the US car industry provides across the country. The funds had already been earmarked by Washington for the carmakers to use to pay for green modifications to new vehicles. Under the senators' plans, their proposed bill would allow the car groups to use the money for basic operating costs and access the cash as quickly as possible.

Later in the afternoon, Nancy Pelosi, the Democrat Speaker of the House of Representatives, effectively vetoed any speedy arrangements to vote on such a bill by insisting that the three carmakers must present feasible business plans to Washington, explaining how they planned to recover and pay the federal loan back.

She said: "Until we can see a plan where the auto industry is held accountable and a plan for viability on how they go into the future, until they show us the plan, we cannot show them the money. And that is really where we are with this."

She also indicated that she has no plans to timetable a vote on any bill until next month.

After Ms Pelosi's statement, President Bush urged lawmakers to pass emergency legislation as soon as possible. A spokesman for the White House insisted: "Their plan provides assistance from already-appropriated funds, and has strong taxpayer protections."

The fall of the Dow Jones Industrial Index came after a torrid morning. Stocks had been hit on new data showing that around 542,000 Americans lost their jobs last week, marking the fastest rise in US unemployment for 16 years. The increase comes after companies across the US sought to drastically cut costs and sack workers as demand for American goods and services dries up at home and abroad.

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