Fears that the global economic recovery has stalled pushed the Dow Jones industrial average below 12,000 for the first time since March and drove the stock market lower for the sixth straight week.
Friday's drop extended the longest weekly losing streak for stocks since the fall of 2002.
Weak economic news has dampened hopes for a steady recovery, sending stocks down. Traders worry that weaker hiring, sluggish industrial output, and a moribund housing market are reversing a bull market that has lifted the Dow 20 percent over the past year.
If the indexes continue their slide for another week, it would be the first time in 10 years that the market suffered a seven-week stretch of losses. The last such stretch began in May 2001 as the dot-com bubble deflated.
The Dow fell 172.45 points, or 1.4 percent, to close Friday at 11,951.91. The S&P 500 index fell 18.02, or 1.4 percent, to 1,270.98. The Nasdaq dropped 41, or 1.5 percent, to 2,643.733.
The Nasdaq is now down slightly for the year, as is the Russell 2000 index of small company stocks. The Dow is still up 3.2 percent for 2011 and the S&P 1.1 percent.
Some investors said the recent pullback may not last.
Jack Ablin, chief investment officer at Harris Private Bank, said strong corporate earnings and widespread economic growth, however slow, should lead to more gains in the coming months. "Anyone selling shares today has to be pricing in a recession," he said. Most economists expect slow growth but not a recession.
Shares had bounced back Thursday, breaking six straight days of losses, after U.S. exports unexpectedly hit a record in April. By Friday morning, those gains had evaporated. The losses were widespread, with declines across all 10 of the S&P 500's industry groups.
Ablin suggested that Friday's losses were partially driven by the Federal Reserve's unloading of millions in risky mortgage bonds onto the market. As big banks buy those securities, they dump assets such as stocks and high-yield corporate bonds.
Karyn Cavanaugh, vice president and market strategist with ING Investment Management, advised investors to stick out the market's recent turbulence.
"The market doesn't go up indefinitely; it's not a straight line and it does get choppy at times," she said. Cavanaugh said seven straight quarters of stronger-than-expected corporate earnings are a clear signal that the bull market will continue.
Aside from a promising report on higher exports Thursday, investors had little reason to cheer this week. Citigroup Inc., Bank of America Corp. and other big banks led stocks lower Monday amid expectations that banks would have to set aside more cash to cover potential losses.
Federal Reserve Chairman Ben Bernanke gave a speech Tuesday in which he said the economy's greatest troubles -- high oil prices and supply chain disruptions from Japan -- would soon pass. Bernanke offered no hint of further help from the Fed and the stock market dropped as he spoke. The next day, stocks slipped again after a Federal Reserve report showed the economy slowed in New York, Chicago and other major metropolitan areas.
Asian markets were mixed Friday. A smaller than anticipated Chinese trade surplus in May and a bigger than expected decline in British industrial production in April led to fears that growth is also slowing overseas, not just in the U.S. Economists say Beijing's efforts to temper rapid growth by curbing lending and investing could cool its economy too quickly. Weakness in China could hurt the global commodities trade if it cuts into demand for oil, iron ore and other industrial inputs for which China is a key customer.
The euro fell below its recent highs on signs that European policymakers have reached an impasse over how to handle Greece's drawn-out debt crisis.
The yield on the benchmark 10-year Treasury note fell as investors put money into low-risk investments. The yield fell to 2.97 percent Friday afternoon, after trading above 3 percent Thursday as the stock market rallied. Bond yields fall and their prices rise when demand for them increases.
In corporate news, shares of solar chip maker MEMC Electronic Materials Inc. fell 3.5 percent after an analyst downgraded the stock, saying prices for solar wafers are falling rapidly because of overproduction in China.
Goodyear Tire fell 6.6 percent, the most in the S&P 500, after the company agreed to sell its Asian wire business to South Korea's Hyosung Corp. for $50 million. Analysts with J.P. Morgan Chase & Co. said they expect "significantly weaker" demand for replacement tires.
Four stocks fell for every one that rose on the New York Stock Exchange. Consolidated trading volume was 3.9 billion shares.