Washington  - US stocks dropped Tuesday by more than 1 per cent, in the worst two-day slump in six years on concern that Congress won't act fast enough to adopt the government's 700-billion- dollar bank rescue plan that the central bank head says is direly needed to avoid a recession.

Hardest hit companies included General Motors Corp, department store chain Dillard's Inc and Regions Financial Corp, which tumbled more than 7 per cent. Members of the Senate banking committee Tuesday were sceptical over US Treasury Secretary Henry Paulson's plan.

The White House said the need for action was "dire" after credit markets froze last week. Spokesman Tony Fratto said that numerous businesses are already struggling to get overnight financing for their ongoing operations to pay employees and to purchase equipment and the things that go into the products they make.

Federal Reserve head Ben Bernanke told the Senate that without congressional action, "jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP (gross domestic product) will contract."

"The credit crunch is going to become far more severe than anybody thought two weeks ago," Tom Wirth, senior investment officer at Chemung Canal Trust Co in Elmira, New York, told Bloomberg financial news agency. "In my opinion this is not understood by the politicians in Washington."

The blue chip Dow Jones Industrial Average slid 161.52 points, or 1.47 per cent, to 10,854.17. The broader Standard & Poor's 500 Index shed 18.87 points, or 1.56 per cent, to 1,188.22. The technology- heavy Nasdaq Composite Index lost 25.64 points, or 1.18 per cent, to 2,153.34.

On Monday, the indices each shed more than 3 per cent.

The US currency rose to 68.09 euro cents from 67.59 on Monday. The greenback fell against the Japanese yen to 105.25 yen from 105.38 yen on Friday.

Last week, stock indices whipsawed as much as 4 per cent a day over the bankruptcy of Lehman Brothers, the purchase of Merrill Lynch by Bank of America and the US government's 85-billion-dollar bailout of the insurance giant American International Group Inc. (dpa)