Stocks fell Friday as results and outlooks from global corporate icons Microsoft and International Business Machines disappointed investors and weakened hopes of a swift recovery in corporate profits.

The blue-chip Dow Jones industrial average lost 78.19 points, or 0.79 percent, to 9,771.85, while the Nasdaq Composite fell 55.48 points, or 2.79 percent, to 1,930.34. The broad Standard & Poor's 500 dropped 11.30 points, or 0.99 percent, to 1,127.58.

Friday ended a zigzag week for the market, with the five trading days resulting in a net loss for major averages. For the week, the Dow fell 2.2 percent, the Nasdaq dropped 4.55 percent and the S&P 500 is off 1.6 percent.

IBM reported lower quarterly results, including a surprising drop in services revenue, as the economic downturn hit spending on computer systems and services. Its shares fell $5.65, or nearly 5 percent, to $114.25, weighing on the Dow average.

Microsoft's profit fell due to a $660 million legal charge, and the software giant said it expects more sluggishness in the personal computer market. Microsoft slid $3.76 to $66.10.

"(Those companies) are not seeing any big signs of recovery and they're uncertain about the future," said David Memmott, head of listed block trading at Morgan Stanley. "People are kind of hoping for better news, but most likely we're still in the end of an economic downturn."

Friday's downbeat mood follows sharp market declines earlier this week after Intel Corp., the world's No. 1 computer chipmaker, warned it was slashing 2002 capital spending, dampening hopes for a quick profit recovery and sending the market reeling. Intel, a Dow stock and one of the heavyweights on Nasdaq, fell $1.05 to $33.48.

"(Corporate profits) are not going to bounce back as quickly as the stock-price bounce-back from Sept. 21 would have indicated." said Benjamin Pace, managing director at Deutsche Bank Private Banking. "When you have the markets move up as much as they've done from the bottom, that's anticipating a lot of good news, so any bad news will be viewed as a disappointment."

The broad market hit its peak on Jan. 4 from the three-year lows hit on Sept. 21 in the wake of the devastating attacks on the United States -- up 21.4 percent -- as investors bet a recovery was on the way.

Dell Computer Corp. fell 85 cents to $28.10 although the No. 1 personal computer maker raised revenue and earnings forecasts for the fourth fiscal quarter, citing increased demand among consumers.

Lackluster earnings news from companies including Sun Microsystems also sent investors scrambling to cash out after Thursday's strong gains and ahead of a long weekend. U.S. financial markets are closed Monday for the Martin Luther King Jr. Day holiday.

"The market had rallied on the outlook -- the expectation for economic rebound," said Nat Paull, portfolio manager at New Amsterdam Partners, which oversees about $1 billion. "Now, with some of the reality of the current situation sinking in, it's sinking some stocks."

Worries about earnings blotted out the ray of light cast by Friday's economic data, which showed improving consumer sentiment and a narrower U.S. trade deficit.

Shares of acquisitive conglomerate Tyco International Ltd. , initially fell 4 percent, partly due to continuing rumors of possible regulatory probes into its accounting practices. Its shares reversed course in the afternoon after Tyco said it would hold an analysts' meeting in New York on Tuesday to address the "baseless rumors that are depressing" the stock.

Tyco, which was the most active stock on the New York Stock Exchange, ended up 3 percent, or $1.38, at $46.45.

Sun Microsystems shed 25 cents to $12.12. The network computer maker reported a quarterly loss and plunging sales as it took a hefty charge for job cuts and restructuring, but said things were starting to look up. Sun's stock was the most actively traded issue on the Nasdaq.

Canada-based Nortel Networks Corp. reported sales that declined steeply from the year-earlier period but were slightly above its previous forecast. Nortel, however, forecast a further 10 percent slide in revenues for the next quarter. Nortel fell 24 cents to $7.50.

One bright spot was diversified manufacturer Minnesota Mining & Manufacturing Co.. Its quarterly operating earnings fell 13 percent as weak economies worldwide hurt sales, but net income rose to $381 million from $326 million a year earlier. Its shares climbed $2.28 to $106.80, helping cushion the Dow average's slide.

Stocks saw a mild improvement earlier in the session, but remained in the red even after an economic report showed U.S. consumers were more upbeat in early January, as a widely watched sentiment index rose for a fourth straight month to its highest level in a year. Another report showed a smaller-than-expected November U.S. trade deficit.

Much of this week's economic data point to an economic recovery, Paull said. "It's just that it's going to be take a little while for it to show through in corporate profitability and that's what's making the market seesaw a little bit."

Shares in Elan Corp. slumped after the Irish pharmaceutical firm said it had temporarily suspended dosing in a trial of a pioneering vaccine for Alzheimer's disease, after four patients became ill. Elan's shares in New York fell more than 13 percent, or $6.17, to $38.65.

Several biotech firms in recent days saw their shares pummeled following setbacks for key drugs, adding to damage in a sector already hurt by the implosion of ImClone Systems Inc. Since Dec. 28, when the U.S. Food and Drug Administration rejected ImClone's application to review its cancer-fighting drug, the American Stock Exchange Biotech Index has fallen more than 12 percent.

Read-Rite Corp. tumbled 34 percent, or $2.10 to $3.99, which easily put it at the top of Nasdaq's percentage decliners. The maker of magnetic recording heads for disk drives warned it expects a significant decline in revenues.

Declining issues led advancers 3 to 2 on the New York Stock Exchange. Consolidated volume totaled 1.60 billion shares, below Thursday's 1.69 billion shares. 

The Russell 2000 index, the barometer of smaller company stocks, fell 8.02, or 1.7 percent, to 474.37. The index had a weekly loss of 15.57 or 3.2 percent. 

Overseas, Japan's Nikkei stock average gained 1.6 percent. In Europe, Germany's DAX index and Britain's FT-SE 100 each slipped 0.2 percent, and France's CAC-40 fell 0.6 percent.

Reuters and the Associated Press contributed to this report.