WASHINGTON — Federal Reserve Chairman Ben Bernanke pleaded Thursday for more government action to relieve the foreclosure crisis and break a vicious cycle in which the housing meltdown is plunging the country deeper into recession.

Beaten-down shoppers, meanwhile, handed retailers their worst month in at least 39 years. And the number of people drawing jobless benefits hit a 26-year high, with the November employment figures due out Friday likely to show more deep job cuts.

"We are probably at the absolute worst of the recession right now," said Mark Vitner, economist at Wachovia Corp.

With soaring foreclosures feeding the country's economic woes, Bernanke called on the government to ratchet up efforts to help people at risk of losing their homes.

Despite steps already taken to try to ease the crisis, foreclosures remain "too high," hurting homeowners, lenders and the broader economy, Bernanke told a Fed conference here on housing finance.

"More needs to be done," he declared.

Lenders appear on track to initiate 2.25 million foreclosures this year, up from an average annual pace of less than 1 million before the crisis, he said.

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"Weakness in the housing market has proved a serious drag on overall economic activity," Bernanke said. "Steps that stabilize the housing market will help stabilize the economy as well."

The fallout is forcing consumers to hibernate, and retailers have suffered the consequences.

Costco Wholesale Corp., usually a strong performer, reported a bigger-than expected sales drop. And most mall-based chains and department stores, such as teen stalwart Abercrombie & Fitch Co., Kohl's Corp. and Macy's Inc., reported sales declines of more than 10 percent. One notable exception from the largely grim sales results: Wal-Mart Stores Inc. posted sales gains.

Overall, sales dropped 2.7 percent last month, according to one tally of retail activity, the Goldman Sachs-International Council of Shopping Centers index based on 37 stores. It was the worst showing since at least 1969, when the index began.

Consumer spending _ which includes retail sales _ accounts for about two-thirds of total economic activity. And job cuts, tanking investment portfolios and sinking home values have made American consumers wary of spending.

Fresh information on layoffs, released by the Labor Department, showed the number of new applications for unemployment benefits dipped to 509,000 last week. Even with the drop, though, the figure was still high and pointed to a deeply troubled employment climate.

The number of people continuing to claim unemployment benefits last week reached 4.09 million, the highest level since December 1982. Even when today's larger work force is factored in, the proportion of workers who are continuing to receive jobless benefits matches a level last reached in September 1992, when the economy was recovering from a recession.

With the economy sinking faster, companies are cutting more jobs. AT&T, the Dallas-based telecommunications giant, announced it will slash 12,000 jobs _ or about 4 percent of its work force. And DuPont of Wilmington, Del., said it will cut 2,500 positions.

On Wall Street, stocks tumbled amid growing anxiety about the November employment report. The Dow Jones industrial average lost 215 points, or 2.5 percent.

The unemployment rate, which bolted to a 14-year high of 6.5 percent in October, is expected to climb to 6.8 percent in November when the government releases new employment data on Friday. If the forecasts are correct, that would mark the highest jobless rate in 15 years. Employers, which have slashed 1.2 million jobs this year alone, probably will ax another 320,000, analysts say.

Fighting for their survival, the chiefs of Chrysler LLC, General Motors Corp. and Ford Motor Co. returned to Capitol Hill Thursday to make a fresh plea for as much as $34 billion in emergency aid. Trying to win over skeptical lawmakers, automakers and their union have promised labor concessions and restructuring. Were one or more of Detroit's Big Three to fail, that would deepen the recession and cause more job losses, industry officials warned.

One of the hardest hit parts of the economy from the housing crisis is manufacturing. Orders placed with U.S. factories dropped 5.1 percent in October, the most since July 2000, the Commerce Department reported Thursday.

To revive the economy, the Fed is poised to lower its key interest rate _ now at 1 percent _ by as much as a half percentage point on Dec. 16.

Faced with their own faltering economies, central banks in Europe, in a series of separate moves, slashed their key interest rates Thursday.

On a parallel track, the U.S. government needs to move ahead with more foreclosure relief, Bernanke said. He suggested exploring the following options:

_ Easing the terms of a government program called Hope for Homeowners. The program lets distressed homeowners refinance into more affordable, federally insured mortgages if the lender writes down the amount owed on the mortgage and pays an upfront insurance premium.

_ Easing the terms of a loan-modification plan put forward by the Federal Deposit Insurance Corp. that seeks to make mortgage payments more affordable. The FDIC put this plan into effect at IndyMac Bank, a large savings and loan that failed earlier this year, and has used it to modify mortgages at other financial institutions.

_ Having the government buy delinquent or at-risk mortgages in bulk and then refinance them through Hope for Homeowners or another government program that insures home mortgages.

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AP Retail Writer Anne D'Innocenzio in New York and Economics Writer Christopher S. Rugaber contributed to this report.