Wall Street is bracing for more volatility after a rocky week which saw stocks hit by renewed worries about the financial sector and failures in the US mortgage market.
Traders said a focus for investors would be the Federal Reserve meeting Wednesday and Thursday at which central bank policymakers are widely expected to keep the federal funds rate anchored at 5.25 percent.
The Dow Jones Industrial Average slid 2.05 percent in the week to Friday to 13,360.26. The broad-market Standard & Poor's 500 declined 1.98 percent to 1,502.56 and the tech-packed Nasdaq composite fell 1.44 percent to end the week at 2,588.96.
Market observers said they would be poring over the Fed's statement next week for clues on its rate stance and what policymakers think about inflationary risks.
"We believe traders could decide to lighten their holdings ahead of the meeting even though most analysts do not expect the Fed to raise rates," said Frederic Dickson, an analyst at DA Davidson & Co.
The stock losses came amid data showing the US housing market still ailing. One report showed new home construction fell 2.1 percent in May. Although the fall was in line with most forecasts, it underlined the lingering slump affecting the nation's housing market, which has been stuck in a slump for over a year.
Investors were also keeping abreast of the Dow Jones take-over saga as General Electric and Britain's Pearson issued a statement saying they would not be mounting a counter-bid for the US media group, which owns the Wall Street Journal.
The move increases the odds that Rupert Murdoch's News Corp will succeed in its five-billion-dollar bid to take-over Dow Jones. Such an outcome would swell Murdoch's already considerable global media holdings.
An upbeat note meanwhile was struck by Blackstone Group, which saw its newly issued shares close up 13 percent at 35.06 dollars Friday following its eagerly-awaited initial public offering on the New York Stock Exchange.
Market participants said they would also be keeping a close eye on the Bear Stearns investment bank and brokerage in coming days. The bank moved Friday to speed a 3.2 billion dollar bailout of a troubled hedge fund it manages hit by losses from sub-prime mortgages.
"It appears that Bear Stearns is going to step in and resolve this situation specifically, but I think it may cause some investors to reassess their exposure, their risk," said Michael Malone, an analyst at Cowen & Co. The bond market rebounded after one of its worst routs in years.
The yield on the 10-year Treasury bond declined to 5.138 percent from 5.171 percent a week earlier while the 30-year bond yield eased to 5.257 percent Friday from 5.263 percent a week earlier. Bond yields and prices move in opposite directions.
All eyes will now be on the looming two-day Fed meeting, which kicks off Wednesday, analysts said as they headed off for the weekend break.
"I don't think the concern is about the potential for the Fed to move. But they do want to know how they perceive this 5.25 percent level. Is it comfortable for the Fed right here?" wondered Marc Pado, an analyst at Cantor Fitzgerald.
The coming week will also see a slight up-tick in the number of economic reports released to the market.
Investors will get fresh updates on existing home sales, new home sales, consumer spending and income, and a final reading on first quarter growth among other reports.
Existing home sales are forecast to have risen slightly to an annualised 6.0 million properties in May compared with a clip of 5.99 million homes in the prior month. The report will be released on Monday.