Stocks took another beating for the fifth-consecutive session Friday, with the Dow logging its worst weekly drop in six, after a report that President Barack Obama said he is not going to make a new budget offer during the "fiscal cliff" summit at the White House.
Instead, Obama plans to lay out what is clear can pass with a majority in both the House and Senate and what most American people support, which includes protecting everyone making $250,000 and less from seeing their taxes go up.
The Dow Jones Industrial Average dropped 158.20 points, or 1.21 percent, to close at 12.938.11, dragged down by Hewlett-Packard and ExxonMobil.
The S&P 500 slumped 15.67 points, or 1.11 percent, to end at 1,402.43. The Nasdaq declined 25.60 points, or 0.86 percent, to finish at 2,960.31. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, spiked to close above 22 for the first time since June.
For the week, the Dow tumbled 1.92 percent, the S&P 500 fell 1.94 percent, and the Nasdaq dropped 2.01 percent. Most Dow components ended in the red for the week, dragged by Hewlett-Packard and Microsoft, while Bank of America squeezed out a small gain.
"Traders are so cautious and investors are also worried," said Stephen Guilfoyle of Meridian Equity Partners.
President Barack Obama met with a bi-partisan group of congressional leaders at the White House, just days before the deadline to reach a deal or see the a series of automatic spending cuts and tax hikes come into force. If a deal is not possible, Obama and the leaders would leave the resolution to the next Congress to address in January.
Earlier, stocks came off their lows as investors latched onto a glimmer of hope amid reports of progress toward a potential deal. According to sources, negotiations revolved around permitting taxes to rise to Clinton-era levels on incomes above $400,000, the level in Obama's last offer to Republican House Speaker John Boehner before their negotiations fell apart earlier this month.
Hewlett-Packard confirmed that the Justice Department is looking into its allegations that Autonomy engaged in accounting fraud prior to its acquisition by HP last year.
Apple dipped after a Chinese court fined the iPhone maker $160,000 for hosting third-party applications on its App Store that were selling pirated electronic books, Xinhua news agency said. Apple shares have declined nearly 25 percent in the last three months. The stock hit an all-time high of $705 in mid-September.
Barnes & Noble jumped after British publisher Pearson said it will buy a 5 percent stake in the bookstore chain's digital Nook and college bookstore businesses for $89.5 million. Separately, Barnes & Noble said it expects holiday sales to be below forecasts and that its Nook business will not meet prior full-year 2013 projections.
Among airlines, Raymond James raised its price target on Delta Airlines, Southwest Airlines, U.S. Airways, Spirit Airlines and Alaska Air.
On the economic front, pending home sales rose to the highest level in more than 2-1/2 years, climbing 1.7 percent in November, according to the National Association of Realtors.
And the Institute for Supply Management-Chicago said its index of Midwest business activity rose to 51.6 in December from 50.4 in November, edging past expectations for 51.0.