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Selloff Hammers Stocks; Goldman Skids 10%

Stocks capped their worst week since late January with a sharp selloff Friday following news that federal investigators were launching a criminal probe of Goldman Sachs.

The Dow shed 158.71, or 1.4 percent, to close at 11,008.61. The S&P shed 1.7 percent and the Nasdaq lost 1.9 percent.

Financials led the decline, with JPMorgan one of the biggest drags on the Dow. The S&P 500 and Nasdaq were also lower.

The decline erase all of the market's gains this week, leaving the Dow down 1.8 percent from last Friday. In addition to the Goldman case, credit downgrades on Greece, Spain and Portugal also weighed on the market this week.

Still, for the month, all major indexes finished higher.

In today's action, Goldman Sachs shed nearly 10 percent, with the stock hitting a session low of $144.45, its lowest in more than nine months. It finished the day at $145.20.

Federal prosecutors launched a criminal probe of Goldman Sachs two weeks after securities regulators accused the bank of civil fraud.

Most analysts still have a "buy" rating on Goldman but Bank of America/Merrill Lynch downgraded its rating on the stock to "neutral" from "buy" this morning, saying it's hard to see the stock making any progress until the matter is resolved. And S&P slashed its rating on Goldman to "sell" from "hold."

Traders also wondered whether Warren Buffett might shed some of his stake in Goldman. The billionaire investor will address the issueduring this weekend’s Berkshire Hathaway shareholder meeting.

And, Morgan Stanley was fined $14 million for failing to report a big-block oil trade and UBS Securities was fined $200,000 in the same case. Moore Capital was handed a fine of $25 million for attempting to manipulate palladium and platinum futures.

Not surprisingly, financials were the day's — and the week's — worst performers. Reflecting the increased jitters in the market, technology and materials rounded out the S&P 500's bottom three sectors. And the CBOE volatility index, widely considered the best gauge of fear in the market, shot back up above 22.

Instead, they played it safe: Utilities, telecoms and consumer staples were the week's best performers.

Meanwhile, some regional banks such as KeyCorp, Fifth Third were showing pockets of strength.

Chip makers fell 4.5 percent, with analysts noting that investors cashed out of shares such as Intel and memory chip maker Micron Technology after South Korea's Samsung said inventory could grow in the year's second half.

MEMC Electronic Materials was the biggest decliner on the S&P 500, down 19 percent, after the chip maker missed its earnings target, which resulted in two price-target cuts and one slashed rating.

Amid the fear in the market, investors turned to the safety of US Treasurys, sending the price of the benchmark 10-year note up half a point and the yield down to 3.67 percent, its lowest level since March 22.

In the day's economic news, the U.S. government said gross domestic product grew 3.2 percent, a shade under forecasts and well below the fourth-quarter growth of 5.6 percent.

The morning also brought some disappointing news on the consumer front: Consumer sentiment fellin late April from March, though it was slightly improved from a mid-month reading, according to the latest Thomson Reuters/University of Michigan survey.

Worries about Greece subsided somewhat amid expectations that an aid package could be unveiled this weekend.Moody's todaydowngraded its ratings on nine Greek banks.

The dollar fellagainst the euro as expectations that Greece will soon receive emergency aid helped to quiet jitters about how Athens will pay its debts, while gold hit a 2010 highabove $1,180 an ounce. Oil prices roseabove $85 a barrel, logging their third straight monthly gain.

BP remains mired in cleaning up the massive oil spill on the Mississippi River, but investors were looking for bargains in the company's stock price, which has fallen roughly 12 percent since the disaster began. Analysts said the drop represents a buying opportunity. For today, the stock ended down less than 1 percent.

Transocean , which operates the Gulf oil rig, fell almost 8 percent.

Massey Energyfell 11 percent amidst criminal investigation over the death of 29 miners after an explosion at the company's West Virginia coal mine. The FBI is examining possible bribery of officialsat the agency that oversees the mining industry and possible criminal negligence on the part of Massey.

Should you buy or sell Goldman and BP? Click on the Market Outlook video at left.

In earnings news, oil giant Chevroneasily beat forecastswith $2.27 a share versus expectations of $1.94, but fell short on revenue.

D.R. Horton was one of the top gainers in the S&P 500 after the homebuilder reported a profit and a sharp increase in orders. Results have started to improve across the sector, with Meritage Homes and Ryland Group earlier in the week reporting improved bottom lines.

McAfee shares tumbled more than 12 percent after the software maker reported results that missed Wall Street projections.

In M&A news, UAL's United Airlines and Continental Airlines are likely to announce a merger Mondaythat would create the world's biggest airline.

Volume was brisk, with 1.58 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, roughly 7 to 1.

On Tap for Next Week:

MONDAY: Auto sales; personal income; construction spending; ISM manufacturing index; earnings from Clorox
TUESDAY: Pending-home sales; factory orders; earnings from Merck, Pfizer, CVS and MasterCard
WEDNESDAY: BOE monetary-policy meeting; weekly mortgage apps; ADP, Challenger job reports; Fed's Rosengren speaks; ISM services index; weekly crude inventories; earnings from Anheuser-Busch, Qwest, Time Warner, Garmin, CBS and Symantec
THURSDAY: Chain-store sales; ECB announcement; weekly jobless claims; productivity; Bernanke speaks; earnings from Activision, Kraft
FRIDAY: Goldman Sachs shareholders meeting; April jobs report; Fed's Plosser speaks; consumer credit; earnings from Liberty Media

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—Reuters contributed to this report.