Stocks Slump as Quarter Comes to a Close

Stocks fell Friday, yielding the first down week on Wall Street in a month, as investors shuffled their portfolios at quarter-end and took a breather from a three-month rally.

The Dow Jones industrial average (search) fell 89.99 points, or 0.99 percent, to 8,989.05, while the broader Standard & Poor's 500 Index (search) ended down 9.60 points, or 0.97 percent, at 976.22. The tech-laced Nasdaq Composite Index (search) lost 8.73 points, or 0.53 percent, at 1,625.28.

For the week, the Dow fell 2.3 percent, Nasdaq 1.2 percent and the S&P 1.96 percent.

The Standard & Poor's 500 index is up about 15 percent since March 31, putting it on track to post its best quarterly performance since 1998.

Investors were disappointed by an earnings report from Nike Inc.(NKE), whose shares fell nearly 7 percent. Part of the session's volatility was pegged to end-of-quarter portfolio tweaking by money managers hoping to make financial statements look better.

An unexpectedly strong report on consumer sentiment failed to boost the market as investors begin to focus on the outlook for second-quarter earnings. The sentiment data was not strong enough to maintain an upward trend, traders said.

"We are in a little bit of a resting period ahead of what will be a busy earnings season in a couple of weeks," said Peter Boockvar, equity strategist at Miller Tabak & Co.

"We didn't rally from March on hopes for a good second quarter, but for a good second half," Boockvar said. "We will hear it straight from the horse's mouth about how companies see the rest of the year shaping up."

Part of Friday's volatility was due to money managers adjusting their portfolios before the quarter ends on Monday by selling stocks that have fallen and buying ones that have gained, a practice known as "window dressing," traders said.

"A lot of money managers want to try to keep the gains that they've had ... and send people statements that show people a plus for a change on their mutual funds," said Todd Clark, head of listed trading at Wells Fargo Securities.

The Dow and S&P had their first losing week in five after the Federal Reserve cut interest rates on Wednesday in a bid to spark the sluggish economy. The quarter-point rate cut was less aggressive than some investors had hoped, and they were also alarmed by the U.S. central bank's warning of the possibility of earnings-eroding deflation.

For the week, the Dow fell 2.3 percent, Nasdaq 1.2 percent and the S&P 1.96 percent.

"There's nothing fundamental or stock-specific," said Tim Heekin, director of trading at Thomas Weisel Partners. "It's hot, it's Friday and the beginning of summer, so a lot of people have left early and the market's drifting lower on that."

Investors nibbled at marquee technology names that have helped drive the tech-packed Nasdaq up about 21 percent so far this quarter.

Nextel Communications Inc. (NXTL) rose 33 cents, or 1.8 percent, to $18.49 after Wachovia Securities said it raised Nextel's investment rating, saying the wireless telephone company's "earnings power has further upside."

Nike, the world's largest maker of sports shoes, said profits rose 18 percent, but its results fell short of forecasts. The company also reported weak U.S. orders. Nike shares slumped $3.85, or 6.8 percent, to $53.08.

Eli Lilly and Co. (LLY) fell after Merrill Lynch cut its rating on the U.S. drugmaker citing competition that is hobbling sales growth of schizophrenia medicine Zyprexa, Lilly's best-selling product. Lilly slid 2 percent, or $1.41, to $68.12.

Scientific-Atlanta (SFA) fell 63 cents, or 2.6 percent, to $23.57. UBS cut the firm to "reduce" from "neutral," saying the stock's recent rise has more than discounted all the positive catalysts.

The Russell 2000 index, a barometer of smaller company stocks, fell 1.15, or 0.3 percent, to 448.75.

Overseas, Japan's Nikkei stock average finished 2 percent higher Friday. In Europe, France's CAC-40 rose 0.2 percent, Britain's FTSE 100 gained 0.7 percent and Germany's DAX index fell 0.5 percent.

Reuters and the Associated Press contributed to this report.