Stocks sank as investors absorbed a mixed jobs report and began to turn attention to earnings, which will begin to be reported in earnest next week.
The Dow Jones Industrial Average fell more than 55 points a day after the blue-chip index fellfor the first time in five days.
JPMorgan , Travelers and Bank of America led blue chips lower, while Boeing and Exxon Mobil gained.
The S&P 500 and the Nasdaq also fell. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 17.
Among key S&P 500 sectors, financials, telecom and technology fell, while energy and industrials rose.
Only 103,000 jobs were createdon nonfarm payrolls in December, far less than the 175,000 economists had expected, while private sectors jobs rose by 113,000, the Labor Department said Thursday.
But the unemployment rate fell to 9.4 percent, its lowest level in more than 1 1/2 years, from 9.8 percent in November. Economists surveyed by Reuters expected the unemployment rate to fall to 9.7 percent.
"While disappointing, it's not enough to derail the thought that the economy is improving," Dan McMahon, Dan McMahon, director of equity trading at Raymond James. told CNBC.com.
Also, he added, "there's always a lot of uncertainty in the December payroll figures."
Not long after the jobs data was released, Chairman Federal Bernanke told the Senate Banking Committee the economy may be finally hitting its stride, but that it will take time for employment to return to normal levels.
"At this point, things aren’t getting that much worse, but they aren’t getting that much better," said Doug Roberts, chief investment strategist ChannelCapitalResearch.com.
Investors, he said, are "waiting to see what some of the numbers look like next week," referring to earnings. Alcoa was scheduled to release fourth-quarter earnings results on Monday after the market closes, marking the official beginning to earnings season.
Wall Street certainly has an optimistic outlook for stocks, despite the jobs news.
Goldman Sachs raised its year-end 2011 target for the S&P 500 to 1,500, while Deutche Bank raised its target to 1,550. JPMorgan raised its to 1,425, Barclay's raised its to 1,420, Citigroup raised its to 1,400, Bank of America raised its to 1,400, and BlackRock raised its target to 1,350.
From Goldman's perspective, the U.S. economy will grow by 5 percent, forward earnings-per-share will rise by 11 percent, and the price-to-earnings ratio will expand by 8 percent.
In other positive news for stocks, investors moved $9.27 billion into equity funds in the week ended Jan. 5, the biggest inflow since June, while $9.6 billion exited money market funds, according to Lipper Analytical Services, a division of Thomson Reuters.
In company news, Citigroup was seeking buyers forCitiFinancial, according to a report in the Financial Times. The deal could raise hundreds of millions of dollars, the paper said.
And American International Group agreed in principle to settle a lawsuit over alleged under-reporting of premiums on workers' compensation policies, court documents showed.
Liz Claiborne shares tumbled after the apparel maker lowered its earnings forecast in the second have disappointing December sales. The company said operating profits in the second half would rise by $40 million to $50 million instead of the previous estimate of $80 million.
Best Buy's shares rose slightly despite reporting a 4 percent drop in same-store sales.
In earnings news, KB Homes jumped after news the homebuilder had an unexpected profit in its fiscal fourth quarter. The company delivered 37 percent fewer homes, but increased sales prices by 14 percent.
Also on the economic front, November's consumer credit results will be released at 3 p.m. with economists expecting a decline of $2.5 billion, according to Briefing.com.
European shares closed down on renewed fears over Euro zone debt, after reaching multi-year highs in the previous session. The FTSEurofirst300 Index fell 0.2 Percent Asian indexes ended mixed, but mostly in the red. Japanese stocks managed to make slight gains.
"The markets are a bit ahead of themselves for the short term … The chance of the market going up and staying up are pretty much zero, so I think that any gain we get from here will be given back," Charlie Morris, head of absolute return at HSBC Global Asset Management, told CNBC.
MONDAY: Employment trends index, Atlanta Fed President speaks, National Retail Federation Retail Show, Detroit Auto Show; after-the-bell earnings from Alcoa.
TUESDAY: National Federation of Independent Businesses Small Business Optimism Index, Philadelphia and Minneapolis Fed Presidents speak, wholesale trade, 3-yr note auction; before-the-bell earnings from Lennar, Chevron interim results.
WEDNESDAY: Weekly mortgage applications, imports-exports price indexes, oil inventories, 10-year Treasury note auction, Federal Reserve’s Beige Book, Dallas Fed President speaks.
THURSDAY: Bank of England and European Central Bank announcements, international trade, PPI, jobless claims, 30-year Treasury bond auction; after-the-bell earnings from Intel.
FRIDAY: CPI, retail sales, industrial production, consumer sentiment, business inventories, Richmond Fed president speaks; before-the-bell earnings from JPMorgan.
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