Stocks fell sharply Friday as investors locked in profits a day after the broad market reached its highest close in seven weeks while some high-profile investigations reignited jitters about corruption in corporate America.

The Dow Jones industrial average lost 180.68 points, or 2 percent, at 8,872.96, while the tech-laced Nasdaq Composite lost 42.33 points, or 2.97 percent, to 1,380.62. The broader S&P fell 21.84 points, or 2.27 percent, to 940.86.

For the week, the Nasdaq gained 1.4 percent, the Dow rose 1.1 percent and the S&P 500 added 1.3 percent. It was the Dow's fifth straight up week in a row and Nasdaq's third consecutive week of increases.

"Raising some governance issues again seems to be the thing that has spooked the market more than anything else," said Jeff Kleintop, chief investment adviser at PNC Advisors.

Worries about shady corporate dealings had faded somewhat since the scandals surrounding energy trader Enron Corp. and WorldCom Inc. sent stocks into a tailspin, but developing inquiries hit Citigroup Inc. (C) and AOL Time Warner Inc. (AOL). Citigroup's shares fell $1.18 to $34, while AT&T dropped 16 cents to $12.22, both pressuring the Dow.

Wall Street was largely unscathed by the Aug. 14 deadline for executives at hundreds of big companies to swear their financial statements were accurate, "but we know it's not all behind us," Kleintop said.

Chip equipment stocks were hit by fears that budget cuts by Taiwan chip makers could stall a recovery in the sector and a Wall Street analyst's downbeat call on a range of chip-related firms. Leader Applied Materials lost 6.7 percent.

 

Weighing on the market was news that aviation officials cleared passengers from a main terminal at New York's LaGuardia Airport and held up flights after word of a possible security violation. Airport operations returned to normal after a three hours.

"It's a real slow kind of market, the Dow broke 9,000 so there may be a bit of profit-taking," said Robert Basel, a senior trader at Salomon Smith Barney. "There was also news of a security scare at LaGuardia...and that also impacted us."

Chip equipment stocks fell after Banc of America Securities slashed its estimates on a range of companies in the sector, saying the earnings potential of these companies would be hurt by weaker-than-expected semiconductor capital spending.

The Philadelphia Stock Exchange's semiconductor index fell 5.9 percent. It reflected losses in issues such as Applied Materials (AMAT) , which sank $1.09 to $15.08 on Nasdaq.

"People are probably speculating that estimates are going to have to come down again," said Mark Donahoe, managing director of institutional sales trading at U.S. Bancorp Piper Jaffray.

Trade volumes were moderate, with 1.06 billion shares traded on the New York Stock Exchange and 1.49 billion on Nasdaq. Some traders said Friday's pullback was not that significant for the long-term trend.

"It's a Friday in August. A lot of people are away ahead of a long holiday weekend next week," said Bill Punk, managing partner at Punk Ziegel & Co. "We had a nice rally over the last several sessions...and the market is drifting a little now."

Citigroup was under the microscope after a newspaper report that New York State's attorney general has widened his probe of Citigroup's brokerage unit.

The Wall Street Journal, citing unnamed sources familiar with the matter, said New York Attorney General Eliot Spitzer is looking into a lucrative financing deal and what role Citigroup Chief Executive Sandy Weill might have played.

Spitzer is investigating whether Weill might have pressured Jack Grubman, then a telecommunications analyst at Citigroup's Salomon Smith Barney unit, into raising his rating on AT&T Corp. to win a spot underwriting the stock offering for AT&T (T)'s wireless business.

AT&T said it had received a subpoena from Spitzer's office related to that initial public offering.

A Salomon Smith Barney spokeswoman told Reuters that Weill never told any analyst what to write.

AOL Time Warner Inc. was also a subject of investor scrutiny amid fears the world's largest media company may take another large write-down of its assets. It was also hurt by reports regulators may widen their probe into the firm's finances. AOL sagged $1.31 at $12.76, having hit a session low of $12.55.

Weighing on the Internet gear sector, Riverstone Networks Inc. (RSTN) tumbled 25 cents, or more than 21 percent, to 92 cents. Riverstone said it was cutting 30 percent of its work force and forecast a loss that was double expectations. Rival Cisco Systems Inc. (CSCO) fell 65 cents at $14.45.

Lucent Technologies Inc. (LU) shed 5 percent, or 8 cents at $1.50. Lucent is planning another round of job cuts that could reduce the telecom equipment maker's work force by as much as 15,000 jobs, financial news Web site TheStreet.com said. Lucent denied the report.

Several analysts cut earnings and revenue estimates for communications equipment maker ADC Telecommunications Inc. (ADCT) due to weak telecom spending. It fell 37 cents, or 22 percent, to $1.29, and the North American Telecommunications index fell 2.7 percent.

Airlines stocks, which fell, were in the spotlight after Delta Air Lines announced plans for a marketing pact with rivals Continental Airlines and Northwest Airlines .

Delta (DAL) shares fell $1.03 at $18.97, Continental (CAL) lost 21 cents at $10.80 and Northwest (NWAS) was off 55 cents at $10.90.

The Russell 2000 index, the barometer of smaller company stocks, fell 9.54, or 2.3 percent, to 400.13.

Overseas, Japan's Nikkei stock average finished 0.54 percent higher. In Europe, France's CAC-40 fell 1.9 percent, Britain's FTSE 100 declined 1 percent, and in late afternoon trading, Germany's DAX index was down 2 percent.

Reuters and the Associated Press contributed to this report.