Stocks fell Friday after a cautious outlook from Microsoft Corp. (MSFT) fed investors' fears that quarterly earnings don't justify current stock price levels. Tech stocks suffered the greatest losses, and all three major indexes notched losses for the week.

The blue-chip Dow Jones industrial average (search) fell 30.67 points, or 0.32 percent, to 9,582.46, according to the latest data. The technology-packed Nasdaq Composite Index (search) skidded 19.92 points, or 1.06 percent, to 1,865.59. The broad Standard & Poor's 500 (search) shed 4.86 points, or 0.47 percent, to 1,028.91.

For the week, the Nasdaq dropped 2.5 percent, while the Dow lost 1.4 percent and the S&P 500 fell 1 percent.

"Microsoft disappointed ... and that took the market down," said Larry Wachtel, market analyst at Wachovia Securities. "That's not to say many companies' earnings came in line or exceeded, but those got a 'so what' response. Those that disappoint, that becomes larger than life to investors."

The Nasdaq, which has seen the biggest gains, suffered its second down week in a row, while the Dow and the S&P 500 snapped a three-week winning streak.

"In a way, it's starting to become more rational," said Robert Mikkelsen, managing director of institutional sales and trading at the Advest Group. "The earnings are better than expected in general, and the expectations going forward are still good. But I think maybe the market in the short run got a little bit ahead of itself."

Since the rally began in March, the Nasdaq has risen about 47 percent, while the Dow is up about 27 percent and the Standard & Poor's 500 is up about 29 percent.

Friday marked the end of the busiest week of the third-quarter earnings season. Most companies so far have reported earnings in line with or better than expectations, but not strong enough to sustain the run-up in stock prices over the past seven months.

"A lot of investors were expecting very solid numbers. They were extrapolating estimates and raising the bar too high for the fourth quarter," said Keith Keenan, vice president of institutional trading at brokerage Wall Street Access.

Leading the Dow lower was Microsoft (MSFT), which tumbled $2.30, or about 8 percent, to $26.61. The drop was its largest one-day percentage drop since Sept. 17, 2001, the day the markets reopened after the Sept. 11 attack on the World Trade Center. It was the most actively traded stock on the Nasdaq.

The company posted a rise in quarterly profit and increased its outlook for the current fiscal year, although within the range expected by Wall Street. Microsoft said concerns over the security of its software had cut into new contracts in the latest quarter.

Shares of Wal-Mart Stores Inc. (WMT) also weighed on the Dow, a day after hundreds of workers at its stores across the country were arrested on immigration charges in an investigation into contractor cleaning crews. Wal-Mart fell 60 cents, or 1 percent, to $58.11.

JDS Uniphase Corp. (JDSU) lost 18 cents, or 4.8 percent, to $3.60. The fiber-optic components maker posted a quarterly net loss and lower sales and forecast weaker-than-expected sales in the current quarter.

Shares of Scientific-Atlanta Inc. (SFA), the maker of set-top boxes and other equipment for cable companies, plummeted $6.35, or 18 percent, to $28.68. The company said first-quarter profits rose, but reported disappointing shipments of its most advanced set-top boxes to cable operators.

Gateway Inc. (GTW) dropped $1.48, or 24.3 percent, to $4.62 in NYSE trading. Gateway posted its 11th quarterly loss in three years as it lost money in its core personal computer business and struggled to reinvent itself as a consumer electronics store that sells a broad range of products.

Trading volume was active, with 1.43 billion shares changing hands on the New York Stock Exchange and 1.95 billion shares traded on the Nasdaq. Decliners outnumbered advancers by about 9 to 7 on the NYSE and 19 to 12 on the Nasdaq.

The Russell 2000 index, which tracks smaller company stocks, fell 4.06, or 0.8 percent, to 506.43.

Overseas, Japan's Nikkei stock average edged up 0.01 percent. In Europe, France's CAC-40 rose 0.1 percent, Britain's FTSE 100 slipped 0.03 percent and Germany's DAX index declined 1.3 percent.

Reuters and the Associated Press contributed to this report.