In their first-ever deal, the companies have announced they will make more fuel-efficient pickup trucks and sport-utility vehicles as the US heads toward stricter emissions standards.

In a shock move, General Motors has cancelled plans to sell its European car business, comprising the Opel and Vauxhall marques, to a Russian-backed consortium.

The Detroit company’s board said it had scrapped plans for the sale to Canadian car parts Magna and Russia’s Srbank, because of "an improving business environment for GM over the past few months."

Fears about the US economic recovery may have been overdone as strong house sales, construction and manufacturing data boosted stocks on Wall Street.

The reports, along with better-than-expected earnings and a forecast boost from Ford Motor, encouraged investors back into the market after last week’s drop.

Pending home sales in September jumped far more than expected, while construction spending in the month unexpectedly surged and a measure on manufacturing hit its best level since April 2006.

Stocks on Wall Street have failed to sustain the week’s strong opening by European markets, which were buoyed by higher commodity prices.

SunTrust Banks warned that lenders faced more credit losses and commercial real estate may falter through 2010, sending financial stocks down in the US and Canada.

Banks in the S&P 500 Index have fallen 1.7% while the main index closed  0.05% lower at 1025.57, after climbing as much as 0.9%.

The Dow Jones Industrial Average gained 3.32 points, or 0.03%, to 9509.28.

Stocks on Wall Street have extended their recent rally, pushing the broad S&P 500 index across the 1000 line for the first time since November.

The tech-heavy Nasdaq also cracked a significant number, reaching 2000 for the first time since October.

Solid gains in all its commodity-producing components pushed the blue chip Dow Jones Industrial Average up 114.95 points, or 1.3%, to c;ose at 9286.56.

The S&P 500 finished at 1002.6, up 1.5%, and the Nasdaq at 2008.6.

American motorists have gone on a car buying frenzy, scooping up the first tranche of the billion-dollar “cash for clunkers” scheme and forcing the government to stump up more.

Details of the scheme were released only a week ago and by the weekend all of the original $US1 billion had been committed.

Transportation Secretary Ray LaHood said all sales through to Tuesday would be honoured but he warned that unless the Senate approved a $US2 billion funding extension this week, the administration would be forced to pull the plug.