Stocks close in the red on Syria fears, suffer worst month since May 2012

Stocks closed in negative territory on the final trading day of August, with the Dow and S&P 500 posting their worst monthly declines since May 2012, as investors held off making large bets ahead of a long holiday weekend amid escalating worries over Syria.

(Read more: Sell the Syrian threat, buy any action: Market pro)

"Pre-holiday markets are always thinly traded and subject to moves inspired by the stock index futures," wrote Elliot Spar, market strategist at Stifel Nicolaus. "We're probably in the mindset of 'who wants to be a hero in the face of a possible attack over the long weekend and I'd rather be a day late than wrong.' I guess when those that are waiting for some clarity to step up will have to chase."

The U.S. markets will be closed Monday for Labor Day.

U.S. Major Index Performance

	Last	Today's % Change	1 Week % Change	MTD % Change	YTD % Change
Dow	14,810.31	-0.21%	-1.33%	-4.45%	13.02%
S&P 500	1632.97	-0.32%	-1.84%	-3.13%	14.50%
NASDAQ	3589.87	-0.84%	-1.86%	-1.01%	18.89%
Russell 2000	1010.9	-1.56%	-2.63%	-3.29%	19.02%
CBOE VIX	16.96	0.89%	21.32%	26.10%	-5.88%

The Dow Jones Industrial Average slipped 30.64 points, to finish at 14,810.31, dragged by Alcoa and Verizon.

The S&P 500 dipped 5.20 points, to end at 1,632.97. And the Nasdaq slumped 30.43 points, to close at 3,589.87.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, closed above 17.

For the month, the Dow slumped 4.45 percent, the S&P 500 tumbled 3.13 percent, and the Nasdaq slid 1.01 percent. Hewlett-Packard was the biggest laggard on the Dow for the month, while Microsoft was the only component to finish higher.

All key S&P sectors finished in the red for the month, dragged by utilities and financials.

President Barack Obama said that he has not made a final decision on a response to Syria's chemical weapons use, but that he is looking at limited action, not an open-ended commitment.

Obama's remarks follow a statement by Secretary of State John Kerry laying out the case for action against Syria.

Earlier, Secretary of State John Kerry said the U.S. has "high confidence" that the Syrian regime used chemical weapons in last week's attack that killed 1,429 Syrians, including 426 children.

Kerry also made a broad case for limited U.S. military action against Syria for its suspected use of chemical weapons, and also stressed anything that the U.S. might do would be carefully tailored.

Equities initially sold off in a knee-jerk reaction, but quickly recovered from their lows.

"Starting off the speech, it was clear he was making a case for going forward with some sort of military campaign, and toward the end you understood it was something that's going to be done remotely with a shot across the bow effect rather than something lengthy with troops involved," said Mark Luschini, chief investment strategist at Janney Montgomery. "If it's brief, I think that is good for the markets, but time but time will tell once something does begin, what the response will be then."

On the economic front, consumer sentiment retreated to 82.1 in August from 85.1 July, according to the Thomson Reuters/University of Michigan's final reading on the overall index. Still, the final result topped an initial mid-month reading of 80.0 and exceeded economists' expectations for a final read of 80.5.

Meanwhile, consumer spending ticked up 0.1 percent in July, according to the Commerce Department. Economists polled by Reuters had expected a gain of 0.3 percent.

And business activity in the Midwest rose to 53.0 in August from 52.3 in July, according to the Institute for Supply Management-Chicago. A Reuters survey of economists on average expected a median reading of 53.0 in August versus the July figure of 52.3.

General Electric rose after the Wall Street Journal reported the conglomerate plans to spin off the U.S. consumer lending division of GE Capital.

Facebook climbed after Stifel raised its price target on the social-networking giant to $40 from $38.01.

Among earnings, Salesforce.com soared to lead the S&P 500 gainers after the cloud software company lifted its 2014 sales outlook after posting better-than-expected quarterly results. In addition, at least six brokerages boosted their price targets on the company.

Big Lots rose after the retailer reported earnings that topped earnings expectations, thanks to a strong uptick in same-store sales. Still, the company cut its full-year outlook.

In Asia, shares closed mostly higher on Friday, but Japan's Nikkei 225 erased previous gains to end down 0.5 percent, after rising as much as 1.2 percent in early trade on upbeat economic data.

—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Coming Up Next Week:

MONDAY: Labor Day—U.S. markets closed
TUESDAY: PMI manufacturing index, ISM mfg index, construction spending, Fed's Williams speaks, Kodak emerges from bankruptcy; Earnings from H&R Block
WEDNESDAY: Mortgage applications, international trade, quarterly services survey, Beige Book, Fed's Kocherlakota speaks, auto sales, Neiman Marcus bids due, Samsung event; Earnings from Dollar General
THURSDAY: Challenger job-cut report, ADP employment report, jobless claims, productivity & costs, Fed's Kocherlakota speaks, factory orders, ISM non-mfg index, natural gas inventories, oil inventories, Fed balance sheet/money supply, chain-store sales, NYC fashion week, G-20 summit, new Yahoo logo
FRIDAY: Fed's Evans speaks, nonfarm payrolls, Fed's George speaks; Earnings from Smithfield Foods, Mattress Firm

What's Trending on CNBC.com:

• This smartphone is the main target for malware
  
• Emerging markets: The comeback kid of 2014?
• Mark Carney: the 'George Clooney' of banking?