New York  - US stocks plunged Friday as the government took a bigger stake in Citigroup Inc and figures showed the economy shrank at a far greater pace than expected.

The Commerce Department said Friday that the US economy shrank by 6.2 per cent in the final quarter of 2008, the worst fourth-quarter showing by the country since the recession of 1982.

The sharp downward revision resulted mainly because of a larger- than-expected contraction of inventories of unsold goods and a sharp decline in US exports and consumer demand.

In an agreement with Citigroup announced Friday, the government will own as much as 36 per cent of the bank's shares in exchange for better access to Treasury funds, which could help the ailing bank avoid bankruptcy.

It was the third time since October that Washington came to Citigroup's rescue. Citigroup's share price fell 39 per cent Friday.

Citigroup had reported a 27.7-billion-dollar loss for 2008 due to massive writedowns related to the US housing market collapse.

The part-nationalization of what was once the world's largest bank fuelled speculation that more financial institutions could face a similar government takeover.

Bank of America Corp dropped 26 per cent, while Wells Fargo & Co slumped 16 per cent.

The blue-chip Dow Jones Industrial Average fell 119.15 points, or 1.66 per cent, to 7,062.93 - its lowest close since May 1, 1997.

The broader Standard & Poor's 500 Index shed 17.74 points, or 2.36 per cent, to close at 735.09 - its lowest since December 18, 1996.

The technology-heavy Nasdaq Composite Index dropped 13.63 points, or 0.98 per cent, to 1,377.84.

The US currency rose against the euro to 78.94 euro cents from 78.47 euro cents on Thursday. The dollar fell against the Japanese currency to 97.57 yen from 98.44 yen. (dpa)