The growing financial market crisis  stamped out gains in small-business confidence last month, as owners rushed to cut hiring and spending plans, the National Federation of Independent Business reported.

Buoyed by an improved outlook at the start of September, the Washington-based lobby group's small-business optimism index rose by 1.8 points to 92.9, marking the longest stretch of recession-level readings since the monthly index was launched in 1973.

The mid-month collapse of the nation's largest banks prompted many owners to brace for tighter credit conditions  and weaker sales ahead by slashing employment and capital outlays, the report said.

"Dramatic improvements in the percent of owners expecting the economy to improve over the next six months and solid plans to invest in new inventories accounted for the early surge," William Dunkelberg, the group's chief economist, said in a statement. "But the bulk of the gains were erased by events from mid-month on," he added.

The September index was based on a nationwide survey of more than 700 small-business owners, including 278 responses after Sept. 15.