US stocks fell on Friday as worries about slower economic growth hit shares of industrial companies such as Caterpillar Inc and disappointing news from chip makers pulled tech stocks lower. A report showing a larger-than-expected rise in business inventories added to concerns about the economic outlook, overshadowing a separate report that showed a stronger-than-expected jump in July retail sales.
"We are on potential recession watch," said Barry Hyman, equity market strategist at EKN Financial Services Inc in New York. Shares of Caterpillar, a maker of heavy equipment, fell 1.9 percent, or $1.29, to $67.03 and led the Dow's decline of 0.3 percent. Shares of industrial conglomerate United Technologies Corp dropped 0.5 percent, or 30 cents, to close at $60.15 on the New York Stock Exchange. Semiconductor stocks, also considered a growth gauge, sold off a day after chip maker Analog Devices Inc posted a quarterly sales shortfall and gave a disappointing outlook.
Analog Devices' stock sank 16.2 percent, or $5.17, to $26.73 on the NYSE. The Philadelphia Semiconductor Index fell 2.3 percent, its biggest drop in three weeks.
The Dow Jones industrial average shed 36.34 points, or 0.33 percent, to end at 11,088.03. The Standard & Poor's 500 Index declined 5.07 points, or 0.40 percent, to finish at 1,266.74. The Nasdaq Composite Index dropped 14.03 points, or 0.68 percent, to close at 2,057.71. For the week, stocks fell, with the Dow down 1.37 percent, the S&P 500 losing 0.99 percent and the Nasdaq off 1.31 percent.
Both the Dow and the S&P 500 snapped a three-week winning streak, while the Nasdaq registered its second straight week of declines. A change this week in Federal Reserve interest-rate policy has left investors uncertain, said Bruce Zaro, chief technical strategist at Delta Global Advisors Inc, in Plymouth, Massachusetts.
"In investor's minds, the question is: 'Why is the Fed stopping? Are they looking at their crystal ball and seeing a recession?' Economic bellwether stocks have really had a tough time," Zaro said.
On Tuesday, the Fed's policy-makers decided to keep the fed funds rate steady at 5.25 percent, the first pause in a string of 17 interest-rate hikes since June 2004, but they left the door open to future rate increases.
The financial services sector was among the worst performers in the S&P 500. Shares of Citigroup Inc, the world's biggest financial services company, fell 0.7 percent, or 33 cents, to end at $47.64 on the NYSE.
Analysts said investors were concerned that a resumption in the Fed's interest-rate hiking campaign could dim the outlook for corporate profits, along with near-record crude oil prices.
On Friday, US crude oil for September delivery rose 35 cents to settle at $74.35, not far below a record $78.40 set on July 14. On Nasdaq, shares of Intel Corp, the world's biggest chip maker, dropped 1.9 percent, or 34 cents, to $17.41 and topped the S&P 500's biggest losers. Intel also was among the heaviest weights on the blue chip Dow average.
Shares of wireless chip developer Qualcomm Inc dropped 1.7 percent, or 59 cents, to $33.31. They were the biggest weight on the Nasdaq 100. The stock of Apple Computer Inc fell 0.7 percent, or 42 cents, to $63.65 and also dragged on the Nasdaq. Apple, the maker of iPod digital music players and Mac computers, said it was delaying results as it reviews irregularities related to some past stock-options grants.
On Friday morning, the Commerce Department said US business inventories rose a greater-than-expected 0.8 percent in June. Earlier, before Wall Street's opening bell, the Commerce Department said July retail sales rose 1.4 percent - exceeding the gain of 0.8 percent expected by economists polled by Reuters.
Rising inventories can either signal business confidence in future demand or result from an unexpected decline in sales, causing involuntary stock building. Volume was light on the NYSE, where about 1.32 billion shares changed hands, below last year's daily average of 1.61 billion. On the Nasdaq, about 1.47 billion shares traded, below last year's daily average of about 1.80 billion. Decliners outnumbered advancers by a ratio of about 2 to 1 on both the NYSE and the Nasdaq.