Shares in bankruptcy threatened Kmart fell to their lowest level since the mid-1960s as the credit rating agency ditched the US retail giant from the leading Standard & Poor's index of America's 500 biggest shares.

Investors were spooked by an eerie silence following a meeting of the company's directors and by yet another debt downgrade by S&P.

The share price fell almost 50% to $1.60, having traded as low as $1.27 during the day.

"The stock is trading on pure emotion," said Ladenburg, Thalmann & Co retail analyst, Eric Beder.

"They've needed to say something for weeks. If Kmart is not going to declare Chapter 11 [bankruptcy], they need to come out and forcefully say that."

Early this year, Prudential Securities advised its clients to sell the stock. "Sell" ratings are much rarer in the US than in the UK.

Kmart is seen as falling behind its competitors such as the Walmart and Target chains, with outdated stores and poor support and logistics systems leading to weaker customer service.