updated 7/23/2007 8:33:28 AM ET 2007-07-23T12:33:28

Wall Street pulled back Friday, retreating from record levels following disappointing results from longtime favorites Caterpillar Inc. and Google Inc. The Dow Jones industrials fell nearly 150 points.

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The drop in stocks capped a losing week for the Dow after three weeks of gains, and came a day after the blue chips finished above 14,000 for the first time. The Standard & Poor’s 500 index likewise logged a record close Thursday.

While Friday’s retrenchment might not be surprising following weeks of somewhat volatile trading and the big gains Thursday, Caterpillar has been one of the best-performers among the 30 stocks that make up the Dow and a big contributor in the blue chips’ march to 14,000. The heavy equipment maker unnerved investors when its results came in well below expectations.

Jitters over subprime lending also weighed on the stock market, and led investors to buy up safer Treasury bonds instead. As Treasury prices rose, the benchmark 10-year note’s yield dropped sharply to 4.95 percent from 5.03 percent late Thursday.

Meanwhile, technology shares took a hit after a strong run Thursday. Google turned in a second-quarter profit that fell short of Wall Street’s high expectations, while Microsoft Corp.’s earnings report wasn’t impressive enough to alleviate investors’ concerns about the sector.

“As people start to absorb the numbers and start to see the second-quarter numbers aren’t good as the first quarter, that starts to create some pullback a bit,” said Nick Raich, director of research at National City Private Client Group.

According to preliminary calculations, the Dow fell 149.33, or 1.07 percent, to 13,851.08. The index earlier declined by as many as 200 points, and finished the week down 0.40 percent.

Broader stock indicators also lost ground. The S&P 500 index fell 18.98, or 1.22 percent, to 1,534.10, and ended the week 1.19 percent lower.

The Nasdaq composite index fell 32.44, or 1.19 percent, to 2,687.60, and finished down 0.72 percent for the week.

Not only was Wall Street busy digesting the first sizable disappointments of the second-quarter earnings season, but investors also dealt with added volatility because of the expiration of four types of options contracts — an occurrence known as quadruple witching.

The dollar was lower against most other major currencies. Gold prices rose. Light, sweet crude fell 35 cents to $75.57 a barrel on the New York Mercantile Exchange Friday, after trading above $76 a day earlier for the first time in 11 months.

Looking past high oil prices, which can stoke inflation, stocks forged gains earlier this week in part on earnings news. Of the 130 companies in the S&P 500 that have reported quarterly results, earnings growth has been 1 percent, Raich said. He noted companies were expected to show flat profits so the results are better than expected. Still, he said, “the margin by which companies are beating estimates in the second quarter is so far the lowest we’ve seen in five years.

“With some high expectations and some complacency in the market, the chances of a near-term pullback have gone up over the past month,” he said, arguing that Wall Street’s expectations for corporate profit growth are too high.

Caterpillar cited lackluster sales in North American construction markets as well as a bigger-than-expected increase in operating costs. However, the company left its full-year profit forecast unchanged. Caterpillar was the weakest performer among the Dow stocks, falling $3.78, or 4.4 percent, to $83.20.

Google fell $28.47, or 5.2 percent, to $520.12 after its earnings before certain costs missed Wall Street’s forecast. Still, the company saw revenue jump 58 percent to $3.87 billion. Investors also fretted as profit margins narrowed as the company spent to hire more workers and acquire content for its Web sites.

Microsoft, which like Caterpillar is part of the Dow, fell 35 cents to $31.16 after its earnings met expectations but failed to dazzle investors after several robust quarters that topped forecasts.

While no major economic news was releasedFriday, St. Louis Federal Reserve President William Poole weighed in on the subprime mortgage market in a speech in St. Louis. He argued Wall Street was right to punish shares of companies that made bad bets by offering loans to borrowers with spotty credit history.

Concerns about an unraveling of subprime loans have dotted Wall Street’s advance in recent months. Investors grew skittish earlier in the week — helping send stocks lower in Wednesday’s session — following word that two Bear Stearns Cos. hedge funds were left essentially worthless following bad bets on the subprime lending market. As home values in parts of the country have fallen, some borrowers behind on payments have found it harder to tap into their home equity to square away their debts.

Fed Chairman Ben Bernanke warned Thursday that the situation with subprime loans would grow worse before improving.

Declining issues outnumbered advancers by more than 3 to 1 Friday on the New York Stock Exchange, where volume came to 1.99 billion shares.

The Russell 2000 index of smaller companies fell 15.41, or 1.81 percent, to 836.44.

In market action abroad, Japan’s Nikkei stock average rose 0.23 percent. Britain’s FTSE 100 fell 0.83 percent, Germany’s DAX index fell 1.46 percent, and France’s CAC-40 fell 1.79 percent.

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