Stocks fell on Friday on a combination of weak earnings from retailers, Senate backing for limits on credit card fees and concerns over the sustainability of European public debt.
Bank and credit card companies' shares slumped a day after the Senate voted to limit fees charged on credit and debit card transactions. The limits added to fears that beefed-up financial reform legislation could hurt profits in the sector. Visa's stock fell almost 10 percent.
Investors who had taken comfort in signs of strength in the U.S. economy were faced with more below-par forecasts from retailers such as Nordstrom Inc and J.C. Penney Co Inc , casting doubt on the strength of the recovery in consumer spending.
Daily volume was above average while declining stocks outnumbered advancers by a ratio of about 7 to 1 on the New York Stock Exchange. The CBOE Volatility Index <.VIX>, or VIX, a measure of market turbulence, surged 17.1 percent to 31.24, echoing moves when the stock market plunged last week.
Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York, said the notion that the U.S. economy would make up for weakness in Europe had suffered a setback this week. He cited a cautiuos tone from Cisco Sytems Inc on Wednesday as well as poor earnings from retailers.
You have four things to (go into) GDP -- you have consumption, you have investment, you have government and you have trade -- three of those four were hit, he said.
The Dow Jones industrial average <.DJI> dropped 162.79 points, or 1.51 percent, to end at 10,620.16. The Standard & Poor's 500 Index <.SPX> fell 21.76 points, or 1.88 percent, to 1,135.68. The Nasdaq Composite Index <.IXIC> lost 47.51 points, or 1.98 percent, to close at 2,346.85.
WINNING WEEK AFTER A WILD RIDE
Stocks rallied sharply on Monday after news that European Union finance ministers had agreed to a $1 trillion aid package for debt-laden Greece. But the optimism was short-lived, with stocks down three days this week.
Despite Friday's sharp sell-off, all three major U.S. stock indexes scored their biggest weekly percentage advance in the last 10 weeks, thanks largely to Monday's gains.
For the week, the Dow rose 2.3 percent, the S&P 500 added 2.2 percent and the Nasdaq climbed 3.6 percent. However, after the recent volatility the Dow and the S&P 500 are up just 1.8 percent for the year, while the Nasdaq is up 3.4 percent.
MORE GREEK ANGST
As the initial optimism over moves to stem the euro-zone debt crisis ebbed, investors moved out of riskier assets. Global shares and commodity prices dropped sharply while the euro sank to an 18-month low against the dollar. Gold, a classic safety play, hit a record high before getting caught up in the commodities sell-off.
Deutsche Bank Chief Executive Josef Ackermann, echoing sentiment among many investors, said he doubted that Greece could repay its debt, but the $1 trillion euro-zone rescue would help stabilize Italy and Spain.
Euro/dollar and S&P 500 25-day rolling correlation has strengthened to a robust 85 percent, the highest since mid-February on growing fears that slow growth in Europe will hurt corporate profits. For Reuters analysis and a Factbox on S&P 500 exposure to Europe, see [ID:nN07272417] and [ID:nN14162000]
NOT EXACTLY 'PRICELESS'
The S&P financial index <.GSPF> shed 2.7 percent, with credit card companies among the heaviest losers. Visa Inc dropped 9.9 percent to $77.26. Shares of MasterCard , known for its Priceless advertising slogan, sank 8.6 percent to $212.45.
The S&P retail index <.RLX> fell 1.2 percent, with Nordstrom down 3.7 percent at $39.76 and J.C. Penney off 2.2 percent at $27.54.
Shares of Nvidia Corp slid 11.5 percent to $12.96 a day after the graphics chip maker forecast sales below estimates.
In the retail sector, Dillard's Inc reported profit that topped estimates, driving its stock up 7.9 percent to $27.76.
Energy companies' shares fell, with the S&P energy index <.GSPE> off 2 percent as crude futures prices fell to a three-month low on swollen U.S. crude inventories and concerns about Europe.
About 11.02 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, above last year's estimated daily average of 9.65 billion.
On the Nasdaq, more than 11 stocks fell for every two that rose.
(Reporting by Edward Krudy; Editing by Jan Paschal)