Stocks fell on Friday as worries about the Italian banking sector added to uncertainty about passage of a Greek austerity plan, and the S&P 500 again tested a key technical level.

The S&P fell closer to its 200-day moving average -- a line the bulls have been able to hold since last September. The level was at 1,263.54.

We are back into a headline driven market. Whatever headline we get out of Europe is deciding the direction (of the market, said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

Italian banks UniCredit SpA and Intesa Sanpaolo fell sharply on concerns about their capital positions alongside uncertainty about the euro zone crisis. Trading in the banks was briefly suspended.

Greece's government faced an electorate vehemently opposed to austerity measures that must be passed in parliament next week to avert default, but progress is being made in persuading banks to take part in a second bailout.

The Dow Jones industrial average <.DJI> was down 102.67 points, or 0.85 percent, at 11,947.33. The Standard & Poor's 500 Index <.SPX> was down 10.90 points, or 0.85 percent, at 1,272.60. The Nasdaq Composite Index <.IXIC> was down 25.38 points, or 0.94 percent, at 2,661.37.

Both the KBW Banks index <.BKX> and the S&P financial sector <.GSPE> fell 0.6 percent.

On Thursday, the market welcomed Greece's agreement to a five-year austerity plan.

The euro fell to a session low against the dollar on worries Greece's parliament might not pass austerity measures needed for the country to secure more bailout funds.

We are closely watching the euro, which is sinking at the moment we speak, to tell us what's going on over there, Saluzzi said.

In the latest economic data, new orders for long-lasting U.S. manufactured goods increased 1.9 percent after dropping 2.7 percent in April as bookings for transportation equipment rebounded strongly.

Oracle Corp lost 2.9 percent to $31.50, a day after the world's No. 3 software maker posted disappointing results, especially in hardware sales, sparking concerns about a bigger slowdown in technology spending.

Micron Technology Inc fell 12 percent to $7.42

after the memory chipmaker recorded results below expectations late Thursday.

(Reporting by Angela Moon; additional reporting by Ryan Vlastelica; editing by Jeffrey Benkoe)