The chance of America’s hardest-hit bond insurers receiving the cash injections that they desperately need receded yesterday, in developments that helped to drag down shares of companies throughout the United States.

The Dow Jones industrial average was down by 315.80 points at 12,266.40 at the close as Wilbur Ross, a potential saviour of the ailing bond insurance industry, opted to inject money into a healthy, rather than a struggling, securities underwriter.

Furthermore, in a move that is sure to rattle the markets when they reopen on Monday, Ambac, the struggling bond insurer, announced late last night that it would become the first securities underwriter to cut its dividend, from 7 cents to 1 cent, and would cease writing new business for six months, as it sought to conserve cash. Ambac's announcement came only hours after it emerged that a key attempt to rescue Ambac, in which Mr Ross had considered investing, could be far from being finalised and may fall through altogether.

Mr Ross, the billionaire investor, yesterday agreed to inject up to $1 billion in Assured Guaranty, one of only two bond insurers that has not only kept its key AAA credit rating from all three mainstream ratings agencies, but also not even had that rating questioned. The other is Financial Security.

Assured Guaranty has much less exposure to high-risk sub-prime mortgage bonds than its rivals and will have no problem meeting the claims it faces. Mr Ross’s capital injection represents an opportunistic move, helping it to win a larger share of new underwriting business as its rivals founder.

Although he did not rule out further investments in insurance, Mr Ross made clear that Assured Guaranty is to be his main bond underwriting vehicle. He had been seen as a potential source of rescue funding for struggling bond insurers, such as MBIA and Ambac, and his investment in Assured cut the chance that he will finance them. Ambac shares fell 66 cents, or 5.6 per cent, to close at $11.14. MBIA ended down 7.75 per cent at $12.97.

Separately, it is understood that the consortium of banks involved in the Ambac rescue is questioning whether the proposed $3 billion injection will suffice. They are trying to establish how much capital they are prepared to risk to keep the underwriter afloat.

It is in the interest of the banks in the Ambac rescue consortium, which includes Barclays and Royal Bank of Scotland, to keep the underwriter afloat because it insures many of the bonds that they own. Even the fear that a bond underwriter cannot meet a potential insurance payout is enough to send a bond’s value tumbling. However, there is a limit to how much the consortium is prepared to invest in the rescue. The chances of the talks failing are mounting as the continued deterioration in the bond market pushes up Ambac’s likely claims bill, which some analyst believe could top $8 billion.

US stocks were also hit by a fall in the National Association of Purchasing Management-Chicago’s business barometer, which showed that US business activity fell to its lowest level in seven years in February. The barometer fell to 44.5, from January’s 51.5.

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