World stocks fell on Friday on news the U.S. economy grew more slowly than expected in the last quarter of 2011, while the euro rose on hopes of an imminent deal on Greece's debt that could help avert a disorderly default.
The United States, the world's biggest economy, grew at an annualized 2.8 percent pace late last year, the fastest quarterly rate in 1-1/2 years. But it fell short of economists' forecast, fuelling worries about U.S. growth in 2012 and bets that the Federal Reserve would need to provide more help.
Fed Chairman Ben Bernanke this week painted a picture of an economy mired in slow growth, and the Fed delayed the timing for an interest rate hike until at least late 2014. He also suggested the U.S. central bank is open to buying more bonds in a bid to stimulate borrowing and investments.
Today's GDP numbers, while positive, indicate that the economy is not really doing all that well, and Chairman Bernanke's extreme policy may be in fact what's needed, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
The GDP data pulled oil prices from their early highs and intensified bidding for safe-haven gold together with U.S. and German government debt.
Gold prices rose for a third straight session in the aftermath of the Fed's commitment to rock-bottom interest rates, which kept pressure on the U.S. dollar. The precious metal last traded at $1,739.19 an ounce, up 1.0 percent on the day and up 4.9 percent on the week, its strongest weekly rise since October.
The Dow Jones industrial average <.DJI> closed down 74.17 points, or 0.58 percent, at 12,660.46. The Standard & Poor's 500 Index <.SPX> finished down 2.11 points, or 0.16 percent, at 1,316.32. The Nasdaq Composite Index <.IXIC> ended up 11.27 points, or 0.40 percent, at 2,816.55. The Dow and S&P fell 0.45 percent and 0.08 percent for their first weekly drops in four weeks. The Nasdaq was up 1.07 percent on the week, stretching its winning streak to four weeks.
Disappointing corporate results also pressured Wall Street stocks. Chevron Corp
Procter & Gamble Co
S&P briefly crossed into positive territory in late afternoon trading after the White House announced an expansion of its main foreclosure prevention program in an attempt to help a struggling U.S. housing market.
Hopes Facebook would soon go public helped stem losses on Wall Street. The world's largest social network plans to file documents as early as Wednesday for an initial public offering that will value at between $75 billion and $100 billion, the Wall Street Journal cited unidentified sources as saying on Friday.
In overseas markets, the FTSEurofirst 300 index <.FTEU3> of leading European shares closed down 1 percent. It ended down 0.23 percent on the week for its first weekly loss since mid-December.
Tokyo's Nikkei <.N225> closed down 0.09 percent, bringing its weekly gain to 0.85 percent.
The MSCI world equity index <.MIWD00000PUS> dipped 0.09 percent one day after hitting its highest level since August. It was on track to rise 1.24 percent for its fourth week of gains.
While some analysts reckoned the January rally in stocks might be running out steam, others said it might be too soon to declare it over.
The markets are tough to short right now because the rallies have been so fierce, said Perry Piazza, director of investment strategies at Contango Capital Advisors in San Francisco.
OPTIMISM ON GREEK DEBT DEAL
In Europe, Greece is just one step away from clinching a debt swap deal with its private creditors, Finance Minister Evangelos Venizelos said on Friday.
Falling borrowing costs for heavily indebted euro zone members reflected some investor confidence and demand from banks flush with cash from the European Central Bank. Italy's six-month borrowing costs dropped below 2 percent at an auction, the lowest level since May, while Spanish 10-year government bond yields hit their lowest level since November 2010.
Fitch Ratings lobbed a sobering reminder of the dire financial situation the euro zone faces. The rating agency downgraded Italy, Spain, Belgium, Slovenia and Cyprus, adding there is a 1-in-2 chance of further downgrades in the next two years.
Financial markets took the downgrades in stride as the euro clung to gains.
The 17-member common currency rose 0.95 percent against the U.S. dollar, at $1.3226 after touching its highest level in 6-1/2 weeks.
But the U.S. dollar <.DXY> fell 0.76 percent against a basket of major currencies, resulting in its biggest weekly drop since mid-October.
The dollar posted its biggest one-day loss against the Japanese yen in about five months. It was down 1 percent at 76.65 yen. The greenback hit a two-month high of 78.29 yen on Wednesday after Japan reported its first annual trade deficit since 1980.
Brent crude oil settled up 67 cents, or 0.6 percent, to $111.46 a barrel, while U.S. crude futures settled down 14 cents or 0.14 percent, at $99.56 a barrel.
Benchmark 10-year Treasury notes were up 13/32 at 100-30/32 for a yield of 1.90 percent, while German Bund futures ended up 31 basis points at 139.00.
(Additional reporting by Angela Moon and Julie Haviv in New York and; Alessandra Prentice, Natsuko Waki, Jan Harvey in London)