WTI lost 10.9 percent for the week to post its third-straight negative week for the first time since the eight-week losing streak ended Aug. 21, 2015.
Earlier, oil held lower after Baker Hughes said the U.S. oil rig count fell 21. Oil hit new lows after the International Energy Agency (IEA) warned global oversupply could worsen in the new year. Brent fell below $38 a barrel to hit its lowest since late December 2008.
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"It's a nervous market here and that's moving due to the fact I think the market wants to hear from the Fed its intentions of future rate hikes," said Peter Cardillo, chief market economist at First Standard Financial.
"Oil barely hanging in above $36. If we dip underneath, that could add to the selling pressure," he said.
The Alerian MLP ETF (AMLP), which tracks large- and mid-cap energy master limited partnerships, ended down 6.7 percent, off session lows but down 41 percent for the year so far.
The Federal Reserve is due to meet Dec. 15 and 16, and could raise rates for the first time in nine years.
"The precipitous decline in oil may be something (the Fed) pauses on but I suspect they say it's something that will pass," said Bill Stone, chief investment strategist at PNC Asset Management.
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U.S. chemical giants DuPont and Dow Chemical officially agreed to merge in an all-stock deal to form a combined company valued at $130 billion. The new firm, to be called DowDuPont, is expected to eventually separate into three entities.
Despite a decline of 5.5 percent Friday, DuPont ended the week up about 4 percent. Dow Chemical fell 2.8 percent Friday to end the week up 0.11 percent.
Also in focus was news that New York-based Third Avenue Management is blocking investors from withdrawing their money from a nearly $1 billion junk bond fund as it tries to liquidate the fund in the biggest failure in the U.S. mutual fund industry since the Primary Reserve Fund "broke the buck" during the 2008 financial crisis.
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"If we're seeing cracks in the high-yield market, that may weigh on equities," said Art Hogan, chief market strategist at Wunderlich Securities. "Oil's been under pressure all week. That's not a new story. DuPont, Dow, caps off a massive year of M&A activity and that doesn't always point to a positive economy in the year to come."
The SPDR Barclays High Yield Bond ETF (JNK) and iShares iBoxx USD High Yield Corporate Bond ETF (HYG) closed about 2 percent lower, off session lows but near levels last seen during the financial crisis.
BlackRock closed down 6.5 percent, as diversified financials underperformed. Legg Mason and Charles Schwab were off about 4.5 percent each.
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"It's been an incredibly challenging market for the broader market and also the financial services stocks because you've seen some pressure ... on interest rate expectations, negative impacts on earnings power, increased caution for credit events which we haven't seen for some time," said Devin Ryan, banking analyst and managing director at JMP Securities.
Treasury yields were lower, with the 2-year yield near 0.88 percent and the 10-year yield at 2.13 percent in the close.
The U.S. dollar held about 0.3 percent lower against major world currencies, with the euro around $1.098. The yen was at 120.91 yen against the greenback in the close.
China's yuan continued to weaken and fell to a fresh low against the dollar since 2011.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, briefly traded above 25 before ending slightly below. The index gained more than 60 percent for the week, the largest weekly increase since the sharp drop in stocks in late August and the fifth-largest weekly gain in the past decade.
"It's been crazy volatile lately. (The VIX) closed near 20 yesterday when the S&P was up 5 points — kind of indicates there's a high level of uncertainty out there," said Randy Frederick, managing director of trading and derivatives at Charles Schwab.
In economic news, October U.S. business inventories was unchanged, while September's figure was revised to 0.1 percent from 0.3 percent.
The preliminary read on December U.S. Michigan Consumer Sentiment was 91.8.
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November retail sales rose 0.2 percent, slightly missing expectations on the headline number. However, the so-called core figure topped Reuters estimates. Taking out autos, gasoline, building materials and food services, retail sales increased 0.6 percent after an unrevised 0.2 percent gain in October.
"Bottom line, it's good to finally see an upside surprise to retail sales but the pace is still pretty mediocre outside of autos," Peter Boockvar, chief market analyst at The Lindsey Group, said in a note.
U.S. producer prices unexpectedly rose in November as the cost of services increased, but the underlying trend continued to point to weak inflation pressures, Reuters said. The Labor Department said on Friday its producer price index advanced 0.3 percent after falling 0.4 percent in October.
"We did have some weak consumer spending reports in the last few months but November was good," said Marie Schofield, chief economist and senior portfolio manager at Columbia Threadneedle Investments.
"PPI remains pretty weak. It looks to me the PPI numbers are bottoming," she said.