Stocks dropped on Friday, snapping a four-day winning streak, after news reports that Standard & Poor's would downgrade credit ratings on several euro-zone countries.

The ratings agency was reportedly set to downgrade euro-zone countries, including France and Austria, but leave the ratings of Germany and the Netherlands unchanged. French Finance Minister Francois Baroin said the country has been notified of a one-notch cut.

After the market's close, S&P followed through with downgrades of France and Austria as well as seven other members of the 17-nation euro zone bloc.

This is going to destabilize a lot of those funding packages because they are all based on the AAA rating, and now you are going to have AA+ for France and Austria, and maybe down two notches for Italy, said Alan Valdes, director of floor operations for DME Securities in New York.

Friday's slide came as investors' focus shifted back to the euro zone's debt crisis.

In recent days, the S&P 500 had reached five-month highs on the back of solid U.S. economic data. The tight relationship between U.S. stocks and the euro has broken down in recent weeks, a sign investors have placed less emphasis on the euro zone's woes.

The Friday selloff shows Europe's debt problems can still make U.S. investors skittish. However, it is notable that the major U.S. stock indexes finished well off the day's lows.

Banks led the decline, as the impending downgrades and lackluster earnings from JPMorgan Chase & Co drove those shares lower. The S&P financial index <.GSPF> fell 0.8 percent, making it the worst performer of the 10 major S&P sectors.

The Dow Jones industrial average <.DJI> dropped 48.96 points, or 0.39 percent, to 12,422.06 at the close. The Standard & Poor's 500 Index <.SPX> lost 6.41 points, or 0.49 percent, to 1,289.09. The Nasdaq Composite Index <.IXIC> fell 14.03 points, or 0.51 percent, to 2,710.67.

For the week, the Dow rose 0.5 percent, while the S&P 500 advanced 0.9 percent, and the Nasdaq gained 1.4 percent.

Investors will look to earnings next week for insight on how the euro zone's debt woes may affect profits. <.N/O>

If you get a weak recession or deep recession in Europe, it is going to hurt our companies and bring our market right back down, Valdes said.

JPMorgan Chase slid 2.5 percent to $35.92 after the bank said fourth-quarter profit fell as the European debt crisis weighed on trading and corporate deal-making. Chief Executive Jamie Dimon expressed renewed concerns about the euro-zone debt crisis.

The KBW index of bank stocks <.BKX> slipped 0.4 percent, following a streak of gains. The index was still up more than 10 percent for the year.

Bank of America shares fell 2.7 percent to $6.61. Goldman Sachs lost 2.2 percent to $98.96.

Volume was light with about 6.39 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below the daily average of 6.68 billion.

Declining stocks outnumbered advancing ones on the NYSE by 1,941 to 1,036, while on the Nasdaq, decliners beat advancers 1,666 to 804.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

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