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Stocks close lower, Dow posts biggest weekly decline in 7 weeks

U.S. stocks finished lower on Friday weighed by Amazon's weak earnings and Visa's disappointing outlook, in addition to ongoing worries over geopolitical unrest.

In the final hour of trading, markets briefly ticked lower after Goldman Sachs released a note saying they are "neutral" on equities over three months as it sees a slide in bonds leading to a temporary selloff in stocks.

"This makes the near-term risk/reward less attractive despite our strong conviction that equities are the best positioned asset class over 12 months, where we remain "overweight,"" the company said in a note.

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The Dow closed below 17,000 in its biggest weekly decline in 7 weeks after Visa fell more than 4 percent on its lowered full-year revenue forecast. Amazon shares dropped as much as 11 percent on Friday.

"The percent of stocks above their 50-day moving averages isn't a vast majority, so the divergences within it tell you the that markets might want to consolidate a little bit," said Art Cashin, director of UBS floor operations at the New York Stock Exchange. "So I think certainly for now they want to rest a little."

So far, just under one half of companies in the S&P 500 have posted quarterly results, with 69 percent of firms topping earnings estimates and 63 percent beating revenue expectations.

"The earnings season is going really well," said Nich Raich, CEO of The Earnings Scout. "The percentage beating are up from the first quarter. There's a re-acceleration of growth. The third-quarter numbers are coming down, but the rate is not as high as the first quarter or fourth quarter of last year. The fourth-quarter estimates [for this year] are actually going up."

"There's been an unlikely improvement in the overall corporate earnings expectations. That's one reason why stocks are melting up," he said, attributing today's lows to the weekend and geopolitical risks.

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Orders for long-lasting U.S. manufactured goods rose more than expected in June, pointing to momentum in the economy at the end of the second quarter. The report did not move stocks much in pre-market trading.

No major companies reported earnings on Friday, except for Xerox, which announced before the bell a profit that fell 1.9 percent in its second quarter and beat analysts' expectations.

"The markets are looking a bit tired," said Peter Cardillo, chief market economist at Rockwell Global Capital. "We're headed to a very busy week of economic data."

The Federal Open Market Committee meets next week, and economic data reports include second-quarter GDP and U.S. employment figures.

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U.S. intelligence indicated that Russia could provide heavier and more sophisticated weaponry to Ukrainian separatists at any moment, a Pentagon spokesman said on Friday.

The European Union is mulling measures to curb Russia access to the capital markets, after the downing of the Malaysia Airlines passenger jet over eastern Ukraine last week. Adding to tensions, Ukrainian Prime Minister Arseniy Yatsenyuk announced his resignation on Thursday, after two parties pulled out of the governing coalition.

In the Middle East, authorities in Gaza reported that 15 people were killed on Thursday after Israeli forces shelled a shelter at a United Nations (UN)-run school, bringing the civilian death toll above 800. The UN warned that Israel may have committed war crimes in its near three-week offensive in Gaza.

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The Dow Jones Industrial Average dropped more than 160 points in intra-day trading, before settling 123.23 points lower, or 0.72 percent, at 16,960.57, weighed by a nearly 4 percent decline on Visa. Cisco, Verizon and McDonald's were among the six blue-chip gainers. The index had its biggest weekly decline in 7 weeks and has alternated between gains and losses for eight straight weeks, a pattern not seen since June 2008.

The S&P 500 closed nearly 10 points lower, or 0.48 percent, at 1,978.34, the first decline after four sessions. Consumer Discretionary was the greatest laggard, and Telecommunications and Materials the only gainers among the 10 sectors. The index traded lower for the first time in four sessions, after closing at its 27th record for the year on Thursday.

The Nasdaq ended higher for the week, but still suffered a loss of 22.5 points, or 0.50 percent, at 4,449.56. Amazon stock contributed to most of the decline.

The Russell 2000 closed lower for the third consecutive week, posting the worst 3-week drop for small-caps in more than 3 months.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose more than 6 percent to 12.61.

For every two decliners, one gained on the New York Stock Exchange, with an exchange volume of more than 568 million and a composite volume above 2.6 billion just before market close.

Crude Oil futures for September settled at $102.09 on the New York Mercantile Exchange, while gold futures for August closed at $1,303.30, down for the second consecutive week.

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The U.S. dollar gained against other major currencies, and the benchmark 10-year note yield fell one basis point to 2.47 percent. The Euro hit its lowest level against the dollar since November.

Shares of the restaurant chain El Pollo Loco surged in the company's first day of trading on Friday, ending 60.20 percent higher at $24.03.

Baidu shares retained gains in the close at $226.50, a 10.88 percent increase, after China's biggest Internet search company beat analyst expectations with a 34.1 percent jump in quarterly net profit, boosted by mobile revenue.

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Facebook closed just under its record high touched on Thursday after the social network company posted higher-than-expected earnings earlier this week.

Starbucks closed 2 percent lower after barely beating Wall Street expectations on its earnings report late Thursday.

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Shares in music streaming service Pandora Media ended the day about 10 percent lower, after dropping as much as 13 percent in intra-day trading on lowered forecasts and a month-over-month decline in audience for June, although quarterly earnings beat expectations for the second straight time.

—By CNBC's Evelyn Cheng. Reuters contributed to this report.

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