In a week dominated by talk about when the U.S. Federal Reserve will start unwinding its massive monetary stimulus program, a raft of weak U.S. economic data have introduced an element of confusion into the markets, strategists say.
Data released on Thursday showed a spike in new claims for unemployment benefits, factory activity slipping in the mid-Atlantic region and a bigger-than-expected fall in groundbreaking for new U.S. homes.
Treasury prices rose, pushing yields down, as traders bet that the weak economic data would encourage the Fed to keep its ultra-lose monetary policy intact. It was a different story in the equity market, where stocks fell on comments from a Fed official that the central bank could start easing up on its monetary stimulus over the summer months.
(Read More: Fed 'Tapering' Talk Getting Louder)
"Equities eased off the recent rallies and this could pass as a consolidation, but a more pronounced move in Treasurys, with 10-year yields down 5 basis points, suggests at least some degree of either 'safe haven' [play] or economic disappointment," analysts at Mizuho Corporate Bank said in a note.
"Worries about weaker U.S. data and QE [quantitative easing] withdrawal must be mutually exclusive, and so, it is either consolidation obscuring the picture in markets or confusion taking hold," they added.
U.S. equity markets closed broadly lower on Thursday, with the Dow Jones Industrial Average and S&P 500 pulling back from record highs set this week. Most Asian markets also pulled back their recent sharp gains on Friday, weighed down by the latest comments from Fed officials.
San Francisco Fed President John Williams said on Thursday the Fed could start dialing back its purchases as early as this summer, if the job market continues to improve. The latest non-farm payrolls report showed the U.S. economy generated 165,000 new jobs last month, much more than expected, helping push the unemployment rate down to 7.5 percent.
(Read More: Stock Mark Gains Show Signs of Wear)
One reason why worries about the Fed tapering off its stimulus program may be overshadowing the impact of weaker data on stock markets is the underlying nervousness about when the unwinding of the quantitative easing will begin given the huge boost it has given markets, said experts.
"The event of the week was not industrial production data or retail sales, it was [Fed] tapering. Will they or won't they and if they do how soon will it come?" said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. "I don't think that's going to happen given the data we've had this week. There's a soft patch in manufacturing and government spending is in reverse gear."
The Fed has committed itself to buying $85 billion worth of U.S. Treasury and mortgage-backed bonds every month and keeping interest rates near zero until the jobs market improves significantly.
It's that massive pumping of liquidity in to markets that has helped fuel a boom in equities and other risk assets globally.
(Read More: Is the Fed Prepping Markets for the End of QE?)
"There is nervousness because market valuations have been based on the fact that money is easy and there has to be transition from market valuations on easy money to economic fundamentals and the soundness of companies," Dodge Dorland, chief investment officer at Landor & Fuest Capital Management told CNBC's "The Call."
"That transition could be rather abrupt if QE unwinding starts sooner rather than later. So there is a potential for the Fed to move sooner and stocks markets are not ready for the punch bowl to be taken away," he added.
— By CNBC.Com's Dhara Ranasinghe, Follow her on Twitter: @DharaCNBC