U.S. stocks were on track to end the week with modest gains as major indexes pulled back from session lows after falling more than 1 percent on Friday on talk that Standard & Poor's was ready to downgrade ratings on several euro-zone countries.

A senior euro-zone source said S&P would downgrade several European nations' credit ratings later on Friday, as it had warned in December, adding that Germany and the Netherlands were not on the list. S&P declined to comment on the report.

The slide, led by banks, came despite solid data that showed U.S. consumer sentiment hit an eight-month high as Americans became more optimistic about job prospects. The S&P financial index <.GSPF> fell 1.2 percent, making this sector the day's biggest decliner.

The tug of war between Europe's debt crisis and relatively solid U.S. economic indicators has stymied investors' attempts to assess how much risk to take on in the market.

Similar to the leaking of the news of the U.S. downgrade by S&P months ago, we're seeing it again with Europe, said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

The reason is that S&P typically gives each individual country 12 hours' notice of an imminent downgrade. And what politician can keep that a secret?

The Dow Jones industrial average <.DJI> was down 88.02 points, or 0.71 percent, at 12,383.00. The Standard & Poor's 500 Index <.SPX> was down 9.52 points, or 0.73 percent, at 1,285.98. The Nasdaq Composite Index <.IXIC> was down 16.72 points, or 0.61 percent, at 2,707.98.

For the week, the S&P was on track to end moderately higher, up 0.6 percent. The Dow was on track to finish the week up 0.2 percent, while the Nasdaq was set to close the week with a gain of 1.3 percent.

Shares of JPMorgan Chase & Co slid 3.4 percent to $35.61 after the bank said fourth-quarter profit fell as the European debt crisis weighed on trading and corporate deal-making.

JPMorgan's Chief Executive Jamie Dimon expressed renewed concerns about the euro-zone debt crisis.

We're very very cautious, Dimon said in a conference call with reporters. I would put myself in the 'increasing worried' category.

The KBW index of bank stocks <.BKX> was down 1.2 percent, following a streak of gains. As of Thursday's close, the index was up almost 11 percent for the year.

JPMorgan's results could be enough to make people take a bit of profits off that strong move, said Brian Lazorishak, senior quantitative analyst and portfolio manager at Chase Investment Counsel in Charlottesville, Virginia.

Bank of America shares fell 2.5 percent to $6.62. Goldman Sachs lost 2.8 percent to $98.36.

(Reporting By Angela Moon; Additional reporting by Jed Horowitz; Editing by Jan Paschal)