The blue chip Dow average fell on Friday as heavy equipment maker Caterpillar Inc posted disappointing earnings and cut its profit outlook, while tech stocks gained as Web-search company Google Inc reported better-than-expected results.
Persistent worries about inflation and higher interest rates, which helped drive stocks down sharply on Thursday, also weighed on the Dow. Shares of major drug companies, including Pfizer Inc and Merck & Co, declined in Friday's session as the sector faces generic competition and legal concerns about key medicines.
Caterpillar, one of the biggest US manufacturers, accounted for nearly all of the Dow's drop. Caterpillar shares lost 9.5 percent to $48.92 on the New York Stock Exchange.
"Google gave a big lift to the tech sector today, but some investors got overly disappointed with Caterpillar's results and sold the more traditional companies," said Stanley Nabi, vice chairman of Silvercrest Asset Management Group in New York.
The Dow Jones industrial average fell 65.88 points, or 0.64 percent, to end at 10,215.22. The Standard & Poor's 500 Index rose 1.79 points, or 0.15 percent, to close at 1,179.59. The technology-laced Nasdaq Composite Index gained 14.10 points, or 0.68 percent, to finish at 2,082.21.
Thursday's sell-off followed a broad market rally on Wednesday. For the week, the major indexes finished mixed - with the Nasdaq up 0.8 percent, while the Dow slipped 0.7 percent and the S&P 500 dropped 0.6 percent.
Caterpillar's shares had their worst one-day percentage drop since November 1999 after the company posted disappointing results and warned that higher raw material costs and production bottlenecks would crimp profits.
Shares of other big manufacturers also slid. United Technologies Corp fell 1.8 percent, or 91 cents, to $50.91 and Boeing Co dropped 1.9 percent, or $1.28, to $66.02, both on the NYSE.
In Friday's NYSE trading, Pfizer slid 3 percent, or 65 cents, to $21.25.
Shares of Merck & Co, which withdrew its popular painkiller Vioxx from the market last year, fell 2.8 percent, or 74 cents, to $26.18 on the NYSE.
The American Stock Exchange Pharmaceutical Index fell 1.25 percent on Friday, after Thursday's drop of 2.9 percent. Health and personal care stocks were among the Dow's worst-performing sectors for the second straight day.
Google jumped 12.1 percent, or $36.70, to $339.90 - or about four times its initial public offering price in August 2004 - and whetted investors' appetite for Internet shares. Earlier in the session, Google hit a lifetime high of $346.43.
Investment companies, including Lehman Brothers, lifted their price targets on Google to $450, a record high.
SanDisk shares surged 21.7 percent, or $10.07, to $56.45 and ranked second only to Google among the Nasdaq's leading net gainers.
Other Internet stocks rode higher on Google's coattails. Chinese search engine Baidu.com climbed 6 percent, or $4, to $70. An index of information technology companies rose 0.3 percent.
"Today we had good earnings and bad earnings," said Hugh Johnson, chief investment officer of Johnson Illington Advisors. But "the underlying theme that's been driving the market is that inflation is a problem and the Federal Reserve is going to raise interest rates, and that's not good news."
Higher interest rates are negative for stocks because they raise borrowing costs for companies and consumers.
US crude oil futures for December delivery rose 61 cents to settle at $60.63 a barrel after hitting a 12-week low and dipping below $60 a barrel for the first time in three months earlier in the day.
Meanwhile, Hurricane Wilma, a dangerous Category 4 storm, was projected to strike southern Florida on Sunday, according to the National Hurricane Center. It would be the third major hurricane to hit the United States since late August. Trading was heavy on the NYSE, with 1.86 billion shares changing hands, well above the 1.46 billion daily average for last year. About 1.83 billion shares were traded on Nasdaq, in line with the 1.81 billion daily average last year.
The number of advancing stocks outnumbered those declining by about 2 to 1 on the NYSE. On Nasdaq, advancers beat decliners by about 3 to 2.