Stocks sank despite a reading on consumer sentiment that was better-than-expected, and after the government reported a gain in gross domestic product for the fourth quarter of 2010, as traders feared the outcome of the escalating protests in Egypt.
The Dow Jones Industrial Average fell more than 125 points Friday after closing shy of 12,000for the second straight session.
Microsoft and Home Depot fell, while Coca-Cola and Bank of America gained,
The S&P 500 fell more than 1 percent, after rising above 1,300 earlier in the session, while the Nasdaqfell nearly 2 percent.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose more than 11 percent, to nearly 18.
All key S&P 500 sectors sank, led by consumer discretionary, technology and telecom.
Stocks slumped as traders became concerned about the protests in Egypt, out of concern the government was losing control, which would lead to instability in the region.
"Equity traders say that’s exactly what the fear is right now," said Todd Schoenberger, managing director at LandColt Trading.
According to an options traders, the escalation in Egypt was "making traders nervous going into weekend."
President Hosni Mubarek was expected to speak about the turmoil Friday, CNN reported, as the nation declared a curfew, and curbed the activities of Nobel Peace laureate Mohamed ElBaradei, who returned to the country on Thursday. The news was roiling markets worldwide.Apache
, an independent energy company with significant exposure to Egypt, fell more than 4 percent. The energy company's shares have fallen more than 8 percent since the protests began four days ago.
Meanwhile,gold prices rose above $1,325 an ounce as U.S. stocks fell, and oil rose above $87a barrel.
"As the situation has escalated throughout the day, so have oil prices," said one trader. "We jumped on word El Baradei's restrictions, then the curfew, the suspension of cell phone service, and speech by Mubarack. It's making the markets very nervous."
The dollar , however, gained against a basket of currencies.
Elsewhere in corporate news, Microsoft unexpectedly reported earnings before the closing bell Thursday, with some analysts saying the numbers were disappointing when they delved into them, as sales Microsoft Windows came up short. The tech giant fell Friday despite at least four brokerages raising their price target for the stock.
Meanwhile, Amazon.com's shares sank more than 7 percent despite Credit Suisse raising the Internet retailer's price target to $185 a share from $165. Amazon.com delivered earnings results that disappointedinvestors after the market closed Thursday.
Initial jobless claims surged to 454,000 in the latest week, figures released on Thursday showed, rising to the highest level since late October and suggesting that any recovery in consumer spending will come in fits and starts.
Another slew of major earnings before the bell on Friday again offered a mixed bag.
Ford Motor shares tumbled after reporting earnings that fell shortof expectations, in part because of a loss in its European operations. Ford's operating profit 30 cents a missed forecasts for 48 cents a share by analysts.
Chevron fell slightly despite reporting a rise in fourth-quarter profits on higher oil prices and the sale of its ownership stake in a pipeline company.
And Honeywell also declined despite meeting profit expectationsand boosting its 2011 outlook. The company also said it would sell its automotive and consumer products unit.
Monster Worldwide , meanwhile, plunged after reporting revenues in the first quarter fell below analyst expectations.
Sara Lee fell after announcing it would split into two separate companies, since the company said it did not receive a high enough bid to justify a sale of the company. One company will focus on meats, such as the Jimmy Dean brand, and the other on international beverages and bakery items.
U.S. Treasury Secretary Timothy Geithner defended U.S. policy at the World Economic Forum in Davos on Friday morning.
The gathering of business leaders continues on Friday.
In Davos, Bank of America CEO Brian Moynihan told CNBC the bank does not need to raise fresh capital to comply with the new financial regulations, while the CEO of Royal Dutch Shell said that his company is poised to grow organically, when asked about a rumor that it had been considering bidding for BP during the Gulf of Mexico crisis.
In U.S. economic news, a reading of consumer sentimentfell from December, but was stronger than analysts had expected as consumers took heart from a strenghtening economy and the prospect of jobs. The Thomson Reuters and the University of Michigan consumer sentiment index was 74.2 at the end of January, better than a preliminary reading of 72.7 and a median forecast of 73.2, according to economists surveyed by Reuters.
The government said the GDP growth came mostly from consumer spending, but the final number actually missed estimates of 3.5 percent.
Markets in Europe closed loweras the Egyptian crisis unfolded. The FTSEurofirst300 Index finished down 0.8 percent.
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