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.

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 also dropped sharply while the euro fell to an 18-month low against the dollar.

Investors who had taken comfort in signs of strength in the U.S. economy were faced with more below-par results from retailers such as Nordstrom Inc and J.C. Penney Co Inc .

Nordstrom fell 4.3 percent to $39.51 and J.C. Penney fell 3.1 percent to $27.30 as their outlooks cast doubt on the strength of the consumer recovery.

Consumer spending is obviously a big chunk of the U.S. growth, and it was one of the things that bulls leaned on - the consumer back and the economy is getting better, said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York.

The Dow Jones industrial average <.DJI> dropped 198.24 points, or 1.84 percent, to 10,584.71. The Standard & Poor's 500 Index <.SPX> fell 25.70 points, or 2.22 percent, to 1,131.74. The Nasdaq Composite Index <.IXIC> lost 58.49 points, or 2.44 percent, to 2,335.87.

Stocks rallied sharply on Monday after news of a $1 trillion aid package for debt-laden Greece, but the optimism was short-lived as stocks fell three days this week

Shares of credit card companies slumped a day after the Senate voted to limit fees charged on credit and debit card transactions, focusing attention back on financial reform legislation, which some investors fear could hurt profits in the sector.

The S&P financial index <.GSPF> shed 2.8 percent, while Visa Inc dropped 10 percent to $77.20 and MasterCard sank 8.3 percent to $213.06.

Deutsche Bank Chief Executive Josef Ackermann said he doubted Greece could repay its debt but that the $1 trillion euro-zone rescue would help stabilize Italy and Spain.

Waddell & Reed Financial Inc tumbled 5 percent to $32.36 after a document obtained by Reuters from Chicago Mercantile Exchange parent CME Group Inc showed that the company was a big seller of futures contracts during the market meltdown last week.

Shares of Nvidia Corp slid 13 percent to $12.71 a day after the graphics chipmaker forecast sales below estimates.

Also among retailers, Dillard's Inc reported profit that topped estimates, sending its shares up 8.3 percent to $27.

Energy companies' shares fell, with the S&P energy index <.GSPE> off 2.9 percent as crude futures prices fell to a three-month low on swollen U.S. crude inventories and concerns about Europe.

(Reporting by Edward Krudy; Editing by Kenneth Barry)