Stocks, meanwhile, moved in the opposite direction of the dollar, which rose slightly against a basket of foreign currencies. The dollar's rise helped to push gold prices slightly lower.
The market's jitters come a day after a volatile sessionrocked by worries over the impact of the foreclosure crisis on banks,as investors considered the wider implications of the crisis on housing and the credit markets. Some analysts, however, believe the crisis has been overblown.
On Friday, S&P Equity Research cut Bank of America to "hold" from "strong buy," saying the big bank is not as prepared for the crisis as JPMorgan. S&P also cut its price target for BofA to $14 from $17; shares of the bank traded at a 52-week low. BofA reports earnings next week.
Meanwhile mortgage insurers, which might stand to benefit if mortgage-backed securities are unraveled and put back to the banks, were mixed on Friday after rallying Thursday. Ambac was up more than 10 percent, while MBIAfell.
Most financial stocks were lower: The KBW Bank Index was down more than 2 percent.
"I think what the market wants now (from the banks) is to deliver us a plan that we think is a feasible one," said J.J. Kinahan, chief derivatives strategist at TD Ameritrade. "Until that is formed or outlined, I think banks will continue to suffer."
A slew of bank earnings are due next week, including earnings from Citigroup , Wells Fargo , Goldman Sachs and Morgan Stanley . Regional banks are also reporting, including Zions Bancorp , M&T Bank , US Bancorp , BB&T ,PNC Bankand KeyCorp .
Also putting pressure on the market were results from CNBC parent and Dow component General Electric. GE posted third-quarter earnings from continuing operations of 29 cents a share, versus estimates of 27 cents a share. Revenue for the quarter came in at $35.89 billion, below consensus estimates of $37.6 billion.
In more upbeat news, Google helped to lift the tech sector, and the Nasdaq, higher as it shares soared more than 10 percent on a strong earnings report released after the bell Thursday.
Meanwhile, Advanced Micro Devices fell slightly, despite good results also reported Thursday afternoon.
Elsewhere in tech news, Seagate Technologies shares spiked higher on reports the maker of hard disk drives has been approached about going private.
Tech earnings will be on tap next week from Apple , IBM , and Yahoo .
Toymaker Mattel also beat expectations on the bottom linethough the company missed on the top line as its gross margins fell, causing its shares to drop sharply.
Shares of Gannett slipped after the media company said earnings per share excluding special items for the third quarter rose to 52 cents a share from 43 cents a year ago.
Whole Foods shares rose nearly 3 percent after Jefferies raised its rating to "buy" from "hold," citing accelerating sales coupled with cost controls. Safeway and Supervalu also rose.
JC Penney rose despite a downgrade by Barclays to "equal weight" from "overweight." The department-store chain retailer is a potential takeover target for Pershing Square Capital.
Volume on the consolidated New York Stock Exchange jumped to 5.9 billion shares. In economic news, the University of Michigan's preliminary consumer sentiment indexfor October was 67.9 in October, less than the 68.5 reading estimated by economists at Briefing.com, and the weakest level since July. The reading was 68.2 in September.
The market had spiked higher early in the session after U.S. Federal Reserve Chairman Ben Bernanke offered further confirmation the Fed plans to assist the economy. Bernanke said high unemployment and low inflation point to a need for a further easing of U.S. monetary policy, but he did not offer specifics on what steps the Fed would take or on when the central bank would act.
"There would appear—all else being equal—to be a case for further action," Bernanke said in remarks at a conference sponsored by the Boston Federal Reserve Bank, Reuters reported.
Bernanke also said a prolonged period of high unemployment could pose a risk to the recovery's sustainability and said the low level of inflation meant the risk of a dangerous downward slide in prices was greater than desirable.
The market's fall on Friday wasn't due to Bernanke's remarks, which were in line with what the market wanted to hear, according to Kinahan at TD Ameritrade.
"He kept his comments very guarded," Kinahan said. "This was the most anticipated Fed speak in awhile, and I think he worded things very carefully, and he told people enough of what we wanted to hear."
The consumer price index rose 0.1 in September, unchanged from August, while excluding volatile food and energy prices, the CPI was unchanged.
Retail sales topped expectations, rising 0.6 percent, on sales of big ticket item, like autos and appliances, from a revised 0.7 gain in August. Analysts polled by Reuters had expected an increase of 0.4 percent for September.
Meanwhile, a measure of manufacturing in New York state rose faster than expected.
Also in economic news, business inventories rose 0.6 percent, slightly more than expected.
The U.S. Treasury will publish its September budget statement at 2 p.m.
European shares were mostly higher with technology names leading the gains. Asian stocks ended mixed, but mostly in the red. The Shanghai Composite Index managed to rise more than 3 percent.
On the Calendar Next Week:
MONDAY: Industrial production, housing market index, Atlanta Fed President Lockhart speaks; Corporate Governance Conference, Gartner Symposium, ABA Annual Convention; before-the-bell earnings from Citigroup, Halliburton, Hasbro, Philips Electronics; after-the-bell earnings from Apple and IBM.
TUESDAY: Housing Starts, Grant's Conference, CFTC Open Meeting on Dodd-Frank; Chicago Fed President Evans speaks; before-the-bell earnings from BofA, Coca-Cola, Goldman Sachs, J&J, AEP, Bank of NY Mellon, Harley-Davidson, Lockheed Martin, NY Times; after-the-bell earnings from Yahoo, Sallie Mae and Western Digital.
WEDNESDAY: Mortgage applications, oil inventories, Beige book; Apple Mac Event, Richmond Fed. President Lacker speaks, Philadelphia Fed President Plosser speaks; before-the-bell earnings from Abbott Labs, Boeing, BlackRock, Morgan Stanley, United Technologies, Wells Fargo, M&T Bank, US Airways; after-the-bell earnings from eBay, E*Trade, Netflix and Seagate Technologies.
THURSDAY: ECB Meeting, jobless claims, leading indicators, natural gas inventories, money supply, Kansas City Fed President Hoenig speaks, CBO Director Elmendorf speaks; before-the-bell earnings from AT&T, Caterpillar, Credit Suisse, Eli Lilly, Novartis, Travelers, UPS, Continental Airlines, PNC Bank, Southwest Airlines, and Xerox; after-the-bell earnings from American Express and Amazon.
FRIDAY: G20 Finance Ministers & Central Bank Governor's Meeting; before-the-bell earnings from Verizon, Exelon, Ingersoll-Rand and Schlumberger.
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