European stocks closed sharply lower on Friday as ongoing debt talks between Athens and its creditors kept investors on edge.
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The Greek government has said it hopes to reach a reform-for-rescue deal with its international bailout supervisors by Sunday, according to Reuters.
However, European officials have denied a deal is near and Christine Lagarde, the head of the International Monetary Fund, was quoted in a German newspaper as saying that Greece talks could fail, forcing the country to default on its debts. The paper toned down the quote on Friday after the release of the official transcript from the IMF, Reuters said.
Peter Cardillo, chief market economist at Rockwell Global Capital cited low volume, Friday trade and concerns about Greece's efforts to reach a resolution by Sunday ahead of its June 5 payment deadline.
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Chicago PMI unexpectedly fell to 46.2 in May versus a read of 52.3 in April. Consumer sentiment showed a final read of 90.7 for May, the lowest since November and below April's 95.9 print.
"The markets certainly shrugged off the (negative) GDP revision, looking ahead to data-rich next week," said Tim Dreiling, senior portfolio manager with the Private Client Reserve of U.S. Bank. "The big one was PMI. It took just a little while to start to digest new orders slipping, inventories slipping."
The U.S. 10-year Treasury yield traded near 2.11 percent after falling to 2.09 percent in afternoon trade.
John Lonski, chief economist at Moody's, said the confirmation of slower economic growth put pressure on equities.
"The worry is whether or not there might be a consistent shrinkage of profits," he said. "Today's news at least increases that type of mindset."
The dollar traded flat, with the euro above $1.09 and the yen near 13-year highs. The greenback is on track for a monthly gain after posting a loss in April.
The second read on first-quarter GDP showed a decline of 0.7 percent, roughly in-line with estimates, as the economy struggled under heavy snow storms and the renewed strength in the dollar. Fourth quarter growth was 2.2 percent.
"The GDP print wasn't a surprise," said Ben Pace, chief investment officer at HPM Partners. "I do think that's going to engender a bit of weakness in the market, and of course the drama around Greece."
Futures traded near earlier lows and Treasury yields briefly ticked higher after the report.
"Fixed income markets seem to have priced in what everybody expected (on GDP)," said Greg Woodard, portfolio strategist at Manning & Napier. He emphasized that investors should look beyond initial reactions to the longer-term implications of a slower U.S. economy, central bank tightening, and a possible Greek default.
First-quarter GDP will be revised again in June, with revisions to historical data expected in July.
"This makes the Fed's job particularly challenging because they're trying to make a decision based on (unsettled) data," said Tara Sinclair, chief economist at Indeed. She said the economy continues to grow at a moderate pace.
Most analysts expect improvement in employment and the housing sector to support liftoff in September, at the earliest.
U.S. Treasury Secretary Jack Lew said at the G-7 finance ministers' meeting that the risk of accident increases the closer a deadline on Greece gets and that leaders need to resolve the crisis "as quickly as possible," Dow Jones reported.
Analysts generally expect Greece to stay in the euro zone.
"I do think it will cause a bit of a psychological issue if they default," Pace said. "But I think it will be confined to Europe, not (significantly affect) the U.S."
Asian stocks ended mixed on Friday, with the Shanghai Composite closing at a one-week low and Japan's Nikkei eking out a 15-year high.
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The Dow Jones Industrial Average closed down 115.44 points, or 0.64 percent, at 18,010.68, with General Electric leading laggards and Merck the greatest advancer.
The S&P 500 closed down 13.40 points, or 0.63 percent, at 2,107.39, with industrials leading all 10 sectors lower.
The Nasdaq closed down 27.95 points, or 0.55 percent, at 5,070.03.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14.
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About two stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of about 1.2 billion and a composite volume of 3.8 billion in the close.
High-frequency trading accounted for 49 percent of May's average daily trading volume of about 6.1 billion shares, according to TABB Group. During the peak levels of high-frequency trading in 2009, about 61 percent of 9.8 billion of average daily shares traded were executed by high-frequency traders.
Crude oil futures for July settled up 4.5 percent at $60.30 on the New York Mercantile Exchange. Gold futures ended up $1.00 at $1,189.80 an ounce.