The Nasdaq fell 5.88 points, or 0.2 percent, to close at 2,665.60, snapping a five day winning streak. For the week, the Nasdaq rose 22.63 points.
The Dow and the S&P posted their fourth straight week of gains, while the Nasdaq turned in its fifth straight week of gains.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose nearly 7 percent to more than 16.
Among key S&P sectors financials, materials and energy were the best performers for the month so far.
Trading has been light all week ahead of the Christmas holiday, but the markets have continued to hold strong gains as the year nears a close. The Dow has risen 5 percent for December and 11 percent for the year-to-date. The S&P 500 has risen 6.46 percent for the month, and 12.7 percent for the year-to-date. The Nasdaq rose 6.7 percent for December, and 17.5 percent for the year-to-date.
"A lot of folks are happy with their performance, and they are willing to stand pat and take this performance and wait until January rolls around," said Benny Lorenzo, chairman and CEO of Kaufman Brothers, a New York investment bank.
Lorenzo expects the Federal Reserve's plans to stimulate the economy with bond purchases, coupled with tax cuts, bode well for an economic recovery. In fact, he expects more than 100,000 jobs will have been added to nonfarm payrolls in December, a figure above consensus estimates.
Other positives for stocks include a more pro-business posture in Washington and the return of retail investors to stocks, Lorenzo said.
"The retail investor abandoned equities for bonds, and the flows of capital have just turned positive in terms of coming into equity funds in the last few months," he said.
Oil prices continued to trade above $90 a barrel, close to their highest level in two years, as inventories shrank and cold weather boosted demand. Also, pipeline supplies to Europe from Russia were partly halted after a pipeline caught fire.
The news lifted some energy stocks, including Devon Energy , Cabot Oil & Gas and Exxon Mobil .
Meanwhile, gold slipped nearly 1 percentto close at $1,380 an ounce, erasing most of the week's gains.
Financials lagged as investors took in some profits after a month-long rally that had sparked a nearly 17 percent rise in the KBW Bank index . Major banks including Bank of America and Citigroup traded lower.
Boeing shares rose after news the airline company resumed flight testing of the 787 Dreamliner.
General Electric traded flat after the parent company of CNBC said it expects its deal with Comcast will close in January, instead of the end of December, as previously expected.
Bed, Bath & Beyond jumped after the home goods retailer reported forecast-beating quarterly profitafter the bell Wednesday. In addition, at least five brokerages raised their price targets on the firm.
But Micron fell after the semiconductor firm reported a 24 percent drop in profits and sales that were lower than expected. Also, Credit Suisse cut its price target on the firm to $10 from $15.
In M&A news, Jo-Ann Stores soared more than 30 percent after the fabric and crafts retailer agreed to be bought by private equity firm Leonard Green & Partners for about $1.6 billion, or $61 per share. The offer prices is a 34 percent premium to the fabrics and crafts retailer's closing price on Wednesday.
Rio Tinto is buying Riversdale, an Australian coal company, for $3.9 billion.
And Rovi has agreed to acquire Sonic Solutions in a stock and cash deal of about $720 million. By combining companies, Rovi should better help studios sell content for digital entertainment.
Ericsson fell after Goldman Sachs cut the telecom equipment supplier to "neutral" from "buy," citing its high stock valuation, and prospects for pricing pressure in 2011.
Meanwhile, Tesla Motors shares tumbled more than 7 percent after CapStone Investments initiated coverage of the electric-car maker with a "sell" rating.
Crocs fell more than 5 percent after the maker of plastic clogs said its CFO had resigned, effective Dec. 31.
Office Depot shares climbed for a second day after the office supplies retailer filed "change in control" paperwork with the SEC, sparking takeover rumors.
