Stocks eased losses ahead of the close, but were on course to end a six-week winning streak, as investors digested a mixed employment report and turned their attention to next week's earnings season.
The Dow Jones Industrial Average fell about 20 points a day after the blue-chip index fellfor the first time in five days.
JPMorgan and Travelers led blue chips lower, while Boeing and Pfizer gained.
The S&P 500 and the Nasdaq also fell. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell slightly to above 17.
Most key S&P 500 sectors fell, led by, financials, telecom and consumer staples.
The dollar rose slightly against a basket of currencies, while the price of gold fell to $1,368 an ounce.
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, according to the Labor Department. But the unemployment rate fell to 9.4 percent, its lowest level in more than 1-1/2 years.
"While disappointing, it's not enough to derail the thought that the economy is improving," said Dan McMahon, director of equity trading at Raymond James. "There's always a lot of uncertainty in the December payroll figures."
Not long after the jobs data was released, Fed Chairman Ben 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 are "waiting to see what some of the numbers look like next week," he said, referring to earnings. Alcoa was scheduled to release fourth-quarter earnings results on Monday after the market closes, marking the beginning to earnings season.
United Parcel Services and Federal Express dropped after news the Department of Justice's antitrust division was conducting an investigation into the delivery companies concerning complaints they are blocking customers from using third-party shipping consultants and negotiators, according to CNBC.
Banks slid after news Massachusetts' top court ruled Wells Fargo and US Bancorp failed to show they held mortgages when they foreclosed on two homes. The rulingcould have implications for other banks, and for the morgtgage-backed securities market.
The KBW Bank Index slid more than 2 percent initially, and volume in bank stocks and bank exchange-traded funds picked up considerably after the news.
Elsewhere in financials, Citigroup sought buyers forCitiFinancial, according to a report in the Financial Times. The deal could raise hundreds of millions of dollars, the paper said.
JPMorgan shares fell even after analyst Mike Mayo of CLSA raised his 2011 and 2012 estimates on the bank to $4.50 and $5.55 from $4.40 and $5.50, respectively, reflecting improving credit quality and higher global asset values. In addition, the firm raised its price target on the financial giant to $52 from $46.
And AIG agreed in principle to settle a lawsuit over alleged under-reporting of premiums on workers' compensation policies, court documents showed.
Dean Foods skyrocketed after news in StreetInsider.com that the hedge fund, Appaloosa Management disclosed a 7.35 percent stake in the food and beverage company with the Securities and Exchange Commission. Dean Foods was the worst performing stock in the S&P 500 in 2010, having fallen about 51 percent.
AK Steel sank after Goldman Sachs downgraded the steel maker to "sell" from "neutral" citing the weak market for electrical steel. It upgraded Commercial Metals , however, to "neutral" from "sell," saying the steelmaker was well positioned to take advantage of a resurgence in construction.
Bernanke's somewhat optimistic view of the economy's strength initially boosted the price of oil, but it ended the session down 3.7 percent to $88.03 a barrel.
Energy stocks, nonetheless, were among the strongest performers of the session.
Baker Hughes and Diamond Offshore got a lift following ratings and target upgrades from Goldman Sachs. Baker Hughes was upgraded to "buy," while Diamond Offshore was upgraded to "conviction buy" from "sell," on expectations demand for its rigs would increase this year.
In addition, Halliburton and Schlumberger rose after Goldman Sachs raised its price targets on the firms to $49 and $97 from $42 and $80, respectively.
Liz Claiborne 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.
Shaw Group slipped more than 4 percent after the construction firm reported a quarterly loss.
Goodyear Tire jumped almost 5 percent after Citigroup raised its rating on the tire manufacturer to "buy" from "hold."
Best Buy rose slightly despite the electronics retailer reporting a 4 percent drop in same-store sales.
Shares of Borders got a boost after news the struggling bookstore chain asked publisheres for leniency on paying its bills, according to the Wall Street Journal.
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.
In general, 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.
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 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.
On Tap Next Week:
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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