Stocks declined Friday on fresh signs of weakness in the manufacturing sector. The news also dragged down European shares.
The Institute of Supply Management's measure of manufacturing activity came in at 49.5 versus the 51.5 that analysts were expecting. A reading above 50 indicates an expanding factory sector; below 50 suggests contraction in manufacturing.
The Dow Jones Industrial Average fell on the news as did the Nasdaq and S&P 500 .
"We know that one of the most important figures that the Fed watches is the manufacturing ISM number, so the odds that they would raise rates now have really come down dramatically," said Linda Duessel, Equity Market Strategist for Federated Investors, appearing on CNBC's "Squawk on the Street".
Treasury prices rose sharply on the ISM report, sending the yield on the benchmark ten-year note to a 10-month low.
The dollar declined against all of its major rivals. The euro hit a 20-month high breaking through the $1.33 mark.
Elsewnere on the economic front, October construction spending declined 0.1%, less than the 0.3% that was expected by Wall Street.
November motor vehicle sales were also released Friday. Overall, U.S. car sales for the month are estimated to have risen to 5.3 million from 5.1 million in October, while November light truck sales are estimated to have risen to 7.3 million from 7.2 million.
Ford Motor sales fell 10.0%. Sales at Chrysler rose 3.0%.
Billionaire financier Kirk Kerkorian has sold his entire stake in General Motors, according to reports from CNBC's David Faber and The Wall Street Journal. In an SEC filing, Kerkorian's investment vehicle, Tracinda, said it has agreed to sell 14 million shares of the automaker, representing a third of Tracinda's remaining GM holdings.
Citing a person familiar with the matter, Tracinda sold 28 million shares to Bank of America, taking its stake to zero, the Journal reported Friday.
Crude oil dropped below $63 a barrel as investors took profits and worried less about OPEC making drastic cuts in production.
Europe Falls on ISM Report
After trading higher early in the session, European stocks fell on the weak U.S. manufacturing report.
Germany's DAX , the FTSE-100 in London and the Paris CAC-40 all closed lower.
Lufthansa shares rose after Morgan Stanley released a positive broker note on the airline and raised its target price.
ThyssenKrupp now expects to top its early prediction for a pre-tax profit of $3.3 billion for the year ending September 2007. Shares turned flat however, after the steel manufacturer announced a likely capital increase of 500 mln eur of capital stock.
In the aerospace sector, EADS shareholders reached a deal late Thursday to provide 10 billion euros ($13.2 billion) in funding the Airbus A350, a mid-size long-haul jet, the Financial Times reported. But there are conflicting reports on the structure of the financing and EADS has told CNBC that no decision has been taken. The FT reports that 4 billion euros ($5.28 billion) will be financed by state guarantees from France, German, Britain and Spain, but Reuters reports there is no agreement on the amount of stat aid.
And European regulators want the ability to veto appointments of Americans to the board of a combined NYSE/Euronext if the planned merger of the exchanges goes through, the FT said, citing a French financial regulator.
Meanwhile, gold prices slipped in London after touching a three-month high above $648 an ounce due an extended decline in the greenback and fears of a slowdown in the U.S. economy.
Nikkei Posts a Modest Rise
Asian stocks finished mixed, though Japan's Nikkei closed higher after investors bought property shares on the back of weaker-than-expected inflation data. Taiwan's TAIEX also inched up but Hong Kong's Hang Seng Index and Australia's S&P/ASX 200 fell from recent highs.
Japan's core consumer prices rose 0.1% in October from a year earlier, compared to an expected rise of 0.2%. The reading dampened speculation that the Bank of Japan (BOJ) will lift interest rates in December, sending Japanese government bond futures soaring to a nine-month high.
But what really concerned Japanese economists was a decline in household spending which fell 2.4% in October from the year before, albeit at a slower pace than expected.
Shares of Australian carrier Qantas Airways jumped after it raised its full-year profit target for the second time this year. Qantas is currently being pursued by a consortium led by Macquarie Bank and Texas Pacific Group
Singapore-listed Pacific Century Regional Development dropped to a two-month low in the first market reaction to a vote on Thursday by minority shareholders to reject the sale of a 23% stake in Hong Kong fixed-line carrier PCCW for $1.2 billion. The operator said it is not in talks to sell any of its telecommunication or media-related assets.