With no fresh U.S. economic data to rattle markets Friday, traders are bracing for another ill wind from Europe.

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Worries about the European banking system shook stock markets across the continent, and then across the Atlantic Thursday. The selling was compounded by weak U.S. economic reports and signs that the U.S. tech industry is feeling the pinch of a slowing world economy.

"The tech stocks have heavy exposure to Europe. That's a big chunk of their earnings," said Art Cashin, head of floor operations at UBS. A number of tech companies this week lowered forward guidance, including Hewlett-Packard

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[HP  Loading...      ()] which cut its full year revenue forecast to $127.2 billion to $127.6 billion, form $129 billion to $130 billion, when it reported earnings Thursday afternoon.

HP also said Thursday that it may spin off its personal computer division, and that it was ending its tablets and smart phone business. The company also said it is in talks to buy U.K. software company Autonomy for $10 billion. Cashin said the industry is in a transitional phase as the challenge from the iPad and other mobile devices shakes the PC industry. Earlier this week, Google

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[GOOG  Loading...      ()] said it was buying Motorola Mobility

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[MMI  Loading...      ()] for $12.5 billion.

"The world of tech a year from now will be very different," he said. "People have to decide where the winners are."

The Dow

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[.DJIA  Loading...      ()] fell 410 points, or 3.7 percent to 10,990, and the S&P 500

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[.SPX  Loading...      ()] was down 4.5 percent at 1140. Nasdaq

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[.NCOMP  Loading...      ()] fell 131 points, or 5.2 percent to 2380. as tech shares sold off sharply. The worst performing S&P sectors were those most sensitive to global growth - energy, off 5.7 percent; industrials down 5.7 percent and materials, down 5.8 percent.

Bond prices ended higher, but were well off their early morning highs, reached when the Dow was down more than 500 points. The 10-year briefly touched a historic 1.97 percent yield , and the 30-year touched 3.35 percent. 

The market talk Friday, with nothing to hang on ahead of the weekend, is very likely to turn to the Fed's annual Jackson Hole meeting at the end of next week. Fed Chairman Ben Bernanke will address the meeting next Friday morning. Bernanke used that speech last year to first discuss a new quantitative easing program, later known as QE2.

Speculation therefore has been building that he may discuss yet another round - "QE3." The Fed's QE2 purchases of $600 billion in Treasury securities ended June 30, and were credited with helping to inflate stocks and commodities prices.

"That's probably the most important event lurking on the horizon," said Chris Rupkey, chief economist at Bank of Tokyo-Mitsubishi.

"As far as I'm concerned, you could flip a coin - 50/50," said Rupkey of the chances of a new easing program. "I didn't like the fact they put in their statement (last week) that they were discussing all options. We've seen that before. It's kind of foreshadowing on their part. The fact that Bernanke got the one-two punch from (Dallas Fed President) Fisher and (Philadelphia Fed President) Plosser makes me think the critics are fighting back and and trying to poison the atmosphere for QE3. It may be very dependent on what happens in the markets." Both Fisher and Plosser oppose further quantitative easing.

Rupkey said QE 2 was introduced against a similar economic backdrop last year, except then there was no sign of rising inflation.

Thursday's data was particularly sour with a Philadelphia Fed survey reading of negative 30.7 from a positive 3.2 in July, its lowest reading since March, 2009. "The Philly Fed (survey) isn't powerful enough on its own. It's still a survey. it's misled before,"  Rupkey said.

"We're lurching from headline to headline...People are too focused on searching for the next piece of bad news. Everything is just turned upside down. Industrial production goes straight up, and people still say we have a recession," said Rupkey.

The disappointing number hit a market Thursday morning, already reeling from a sell off in Europe and speculation that European banks were feeling the effect of the sovereign debt crisis. The European Central Bank disclosed that a single bank borrowed $500 million for a week, and the Wall Street Journal reported that the Fed was ramping up discussions with the European banks that do business in the U.S. to make sure they do not have funding issues.

The Federal Reserve Bank of New York reported after the bell Thursday that it provided $200 million of liquidity to the Swiss National Bank, via its swap lines for foreign central banks, a facility it reopened in May, 2010. This is the first time since March that the Fed provided liquidity. The Swiss have been battling the effects of a rising franc, sought by the world as a safe haven currency as Europe deals with its credit and banking issues.

"There can't be a new funding crisis. Everybody is sitting on liquidity here. I don't know why people think there will be a new funding crisis if they can all borrow what they need from central banks," said Rupkey.

Some bank analysts, however, say the European bank stocks will be under pressure until there's a resolution. "I think there's a lot of concerns," said Ed Groshans, Height Analytics managing director of financials on "Closing Bell."

"If we do have a major sovereign debt issue..these banks in Europe, they need to recognize the true value of the sovereign debt. We can't keep fooling ourselves that it's 100 cents on the dollar. There are some hits that have to be taken, and it has to come through capital, and until we do that, you have counterparty credit risk, and you won't know what it is until we take our medicine," he said.

Richard Bove, bank analyst with Rochdale Securities, also on the program, noted that the bonds of U.S. banks were not reflecting fear in Thursday trading.  Bank of America bonds were flat, and Goldman Sachs bonds were trading higher.

"The bond market is telling you that there isn't a risk in the American banking system. The stock market is simply flipping out," said Bove.

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