President George W. Bush speaks on the phone in the Oval Office Tuesday, Oct. 7, 2008, with Prime Minister Gordon Brown of the United Kingdom, discussing efforts to solve the spreading global financial crisis. President Bush also held phone conversations with French President Nicolas Sarkozy and Italian Prime Minister Silvio Berlusconi.

The US stock market suffered its largest loss since the crash of 1987 on Thursday as panic spread among investors over General Motors, investment bank Morgan Stanley and insurance companies because of a settlement auction Friday of Lehman credit default swaps.

President Bush will make a statement about the crisis Friday morning, the White House said. He will "assure the American people that they should be confident that economic officials are aggressively taking every action to stabilize our financial system."

A bank recapitalisation plan is expected to be announced in coming days and maybe a temporary blanket protection for all deposits.

Stocks fell for the seventh straight trading day on Thursday and have lost more than 20% over that period.

Prices crashed in the last hour of trading amidst frenzied trading.

The Dow Jones Industrial Average lost 7.3% to 8,579.19, closing below 9,000 for the first time since 2003.

Thursday's fall -- the 11th largest in percentage terms in the Dow's history -- could mean that the market meets the definition of a crash, usually defined as a 20% fall in a single day or several days. The Dow's crash in October 1987 was 22.6% in one day while the 1929 crash was back-to-back declines of 12.8% and 11.7%.

The Dow peaked at a record high of 14,164.53 on Oct 09, 2007 -- and exactly one year later, is down almost 40%.

- - Dow Jones Milestones

The S&P 500 index tumbled 7.6% at 909.92. The Nasdaq Composite fell 5.47% to 1,645.

General Motors closed down 31% to $4.76 a share, while Ford fell nearly 22% to $2.08. Ratings agency Standard & Poor's said that it was putting GM and Ford on credit watch negative "because of the rapidly weakening state of most global auto markets" and weak capital market conditions.

Thursday's low point marked GM's lowest share price since March 15, 1950, according to the Center for Research in Security Prices at the University of Chicago.

GM's market capitalization now stands at $2.69 billion. The day after the 1929 stock market crash, the company was worth seven times as much in inflation-adjusted dollars, according to market historian Bryan Taylor of Global Financial Data.

Thursday's crash followed the ending of a 3-week ban on short selling - - betting on a stock falling - - on nearly 1,000 companies. Some investors said renewed short selling had aggravated the downward trend on Thursday but there is a common view that short-sellers are being used as a convenient scapegoat by financial companies.

The Wall Street Journal says that the market rout is rapidly wiping out vast amounts of wealth, casting a pall over households and businesses. US stocks, as measured by the Dow Jones Wilshire 5000, shed $872 billion in market value on Thursday, $2.5 trillion over the last seven trading sessions, and $8.4 trillion since hitting an all-time high one year ago Thursday. The index includes almost all US public companies.

The Journal said that at Thursday's close, the price-to-earnings ratio of the S&P 500 was down to 10.7, the lowest since the early 1980s. At the height of the 1990s bull market, the price of stocks in the Standard & Poor's 500 stock index rose to more than 30 times company profits, a record level that was more than twice the historical average. Between March 2000 and October 2002, the S&P 500 fell 49%, but its price-to-earnings ratio never fell to the historical average of 15 or 16.

Today, an auction will be held for settlement for buyers of about $400 billion of protection on Lehman Brothers' debt.

The settlement of the credit default swaps (CDS) is casting a dark cloud over the most likely holders of the debt — big banks such as Morgan Stanley, Goldman Sachs and JP Morgan Chase together with hedge funds and insurance companies.

The sellers are facing losses in the area of 90% of the insurance sold. If sellers of protection outweigh buyers in the auction, as some analysts expect, losses may be even higher.

Shares of investment bank Morgan Stanley fell 26% Thursday as concerns grew about its dependence on heavy borrowing and the risky securities it holds. Hedge fund clients have withdrawn funds and the cost of protecting against a Morgan Stanley default has risen sharply. So the firm can't issue new debt.

Morgan Stanley is due to get a $9 billion investment from Japanese bank Mitsubishi UFJ Financial Group, which is due to close Tuesday. However, investors are worried because Mitsubishi's purchase price of $25 a share, is now about double Morgan Stanley's closing stock price Thursday. The agreed $9 billion commitment for 21% of the firm two weeks ago could now buy a 65% stake.