Stocks ended the week down after a selloff in techs and financials rattled investors on Friday.
Semiconductor shares were hit hard after Micron, the largest supplier of computer memory chips, predicted further market price declines for NAND flash memory chips, used in MP3 players and other consumer electronics. Micron has a joint manufacturing agreement for flash memory with tech bellwether Intel. Shares of rival SanDisk also declined.
The industry-wide weakness followed bullish sentiment earlier this morning after Deutsche Bank and JP Morgan both upgraded the group. JP Morgan said industry fundamentals appear to be bottoming.
"It was a relatively quiet day initially but then the Micron news hit this afternoon and that's what really started to spark the sell-off," said Mike Malone, trading analyst at Cowen & Company, in an interview with CNBC.com.
"I don't think it's a big deal for tech, in and of itself, because there is a lot of risk priced in already. But that combined with rising yields, along with HSBC and New Century Financial with subprime loans had the market a little jittery," Malone said.
The Nasdaq's decline of more than 1% outpaced losses for the Dow Jones Industrial Average and the S&P 500, which suffered its largest weekly decline in the last two months.
"The S&P is running into resistance around 1450 and we haven't been able to penetrate that, I think that sort of explains the sideways trading we've seen this week," Malone said. "My expectations are that we will break the level and move higher but I'm not certain as to when that will be."
Financial stocks were rattled by hawkish comments from St. Louis Federal Reserve President William Poole regarding inflation. Poole said core inflation rates above 2% were unacceptable and may warrant interest rate hikes by the Fed.
MasterCard said it swung to a fourth-quarter profit earning 31 cents a share on an operating basis, beating the Thomson Financial consensus estimate of 17 cents a share. Shares initially opened higher but closed down sharply after Mastercard said margin growth may slow down. Shares of Citigroup and American Express also declined.
"Traders are still a little hesitant," Arthur Cashin, director of floor operations for UBS, told CNBC.com. "Poole spoke this morning and got the bond market a little on guard. They are also watching oil, but that won't be a factor until it spikes above $60. So for now, it's weekend weariness and keeping an eye on interest rates."
Jeffrey Saut, chief investment strategist at Raymond James, told CNBC.com that stocks look expensive as a whole.
"The equity markets have been set up for a fall. I think we're optimistically valued," Saut said. "Market sentiment is very positive, I would take that as a cautionary sign as well. I mean, everybody's bullish."
"It looks like the market is sort of struggling here a little bit, but there is too much skepticism and negativity on the street for me to think that the bottom is going to fall out," said Jeffrey Hirsch, editor-in-chief of the Stock Trader's Almanac, in an interview with CNBC.com.
Hirsch's publication recently said the 1.4% gain in January was a positive indicator for stock market's potential this year and are forecasting stocks will reach highs of 10% to 15%.
"I would have to see bears disappear to get me fully convinced we'll see a significant correction," Hirsch added.
New York light crude futures fell back a bit after trading above $60 a barrel, tacking gains onto Thursday's late 3.5% surge. Crude exports from OPEC showed signs of slowing as tensions rise between the U.S. and Iran over Tehran's nuclear program.
Treasury prices fell, sending yields higher, after Poole's remarks. Bond traders also took profits on gains made after solid demand for the Treasury's quarterly refunding program.
Fortress Investment Group began trading on the New York Stock Exchange for the first time, closing well above its IPO price of $18.50. Fortress, the first private-equity group and hedge fund to go public, raised $634 million late Thursday.
Shares of Broadcomrose but were well off its session highs after the semiconductor company posted solid fourth-quarter results and announced a $1 billion buyback.
Lear agreed to be acquired by Carl Icahn's American Real Estate Partners in a deal valued at $5.3 billion. Lear shareholders will receive $36 a share in the buyout.
The Big Three automakers were in focus on Friday after analyst sentiment turned more positive. Deutsche Bank upgraded General Motors and Ford to "buy" from "hold" in anticipation of more favorable healthcare negotiations. Citigroup upgraded DaimlerChrysler to "buy" ahead of the company's unveiling of Chrysler's restructuring plan. GM was the best performing stock among Dow 30 components.
European Markets Rally, Yen Falls as Asia Ends Mixed
The CAC-40 ended higher in Paris. Alcatel-Lucent shares rose after the company said it will cut about 12,500 jobs over three years as the company dropped into a net loss for the fourth-quarter.
London's FTSE 100 also closed in positive territory as Britain's Vodafone Group prepared to battle for Indian mobile phone operators Hutchison Essar. Board members of Hutchison Telecom International are to meet Sunday to discuss bids, Indian business channel CNBC-TV 18 said Friday, citing unnamed sources.
Germany's DAX rose, helped by gains in shares of DaimlerChrysler.
The Nikkei 225 Average closed with a solid gain as shipping firms such as Kawasaki Kisen Kaisha rebounded from weakness in the prior trading session, while exporters advanced on the decline in the yen.
South Korea's Kospi Index finished at a new one-month high as Kookmin Bank surged to its highest close since mid-May 2006 a day after announcing a surprise dividend increase and pledging big future payouts.
Hong Kong stocks ended slightly lower after a warning from global lender HSBC that defaults were rising in its U.S. mortgage business.