Stocks sagged Friday after a closely watched report on U.S. economic growth came in well below Wall Street expectations and raised concerns about the strength of the current economic recovery.

The Dow Jones industrial average (search) ended down 22.22 points, or 0.21 percent, at 10,488.07. The Standard & Poor's 500 Index (search) fell 2.98 points, or 0.26 percent, to 1,131.13. The technology-laced Nasdaq Composite Index (search) slipped 2.08 points, or 0.10 percent, to 2,066.15.

For the week, the Dow fell 0.8 percent, the S&P 500 slipped 0.9 percent and the Nasdaq dropped 2.7 percent.

U.S. economic growth slowed to a 4 percent annual rate in the final three months of 2003, less than half the third-quarter pace as consumers cut back spending, the Commerce Department (search) reported early Friday.

Traders attributed the market's declines to the disappointing GDP data, but also said many investors were cashing in gains after the market's recent run-up.

"The market's lower because of the GDP, but I think almost everything people look at now can be seen as an excuse to sell. The market by all technical terms is overbought," said Pat Fay, director of trading at D.A. Davidson & Co.

"Earnings still matter and everyone's beating estimates, but that's already expected. The easiest way for this market to go is down, because it's so overbought," Fay added.

January started with a surge in buying throughout the market amid high expectations for the latest round of earnings reports. But investor enthusiasm dropped when the Federal Reserve (search) changed its stance this week, opening the door for a possible interest rate hike later this year. The resulting sell-off put a big dent in the month's gains.

For the month, the Dow rose 34.15, or 0.3 percent, the Nasdaq rose 62.78, or 3.1 percent, and the S&P climbed 19.21, or 1.7 percent.

The overall uptick in January — marked by weeks of buying followed by a sell-off this week — is good news to those who believe in the "January barometer." The barometer holds that a January rise in the S&P will make for a bullish year, and a lower S&P for January means a bear market is at hand. Since 1950, the barometer has been wrong only five times, with three of those years blamed on world events such as the Vietnam War and the Sept. 11, 2001, attacks.

"Whatever your read is on January, there's still good news to be had on the economy, especially with the solid corporate earnings we're seeing" said Brian Bruce, director of global investments for PanAgora Asset Management Inc. "I think it will take a very solid economic report, or a series of positive reports, to assure people that things aren't as bad as the selling seems to reflect."

Partly offsetting the weak GDP report was another key indicator showing business activity in the U.S. Midwest expanded in January for a ninth straight month, and more strongly than expected.

The National Association of Purchasing Management-Chicago (search) business barometer rose to 65.9 from 61.2 in December, its highest level since July 1994. Economists had forecast the index at 62.0.

News of an unexpected loss at grocery chain Winn-Dixie Stores Inc. (WIN) and the suspension of its dividend weighed on the market. Gilead Sciences Inc. (GILD) was another disappointment when sales of its key HIV drug, Viread, were reported to be not as strong as hoped. That offset a jump in Gateway Inc., which said it would buy profitable competitor eMachines Inc.

Winn-Dixie fell after posting its loss, dropping $2.53, or 28 percent, to $6.56, making it the biggest percentage loser on the New York Stock Exchange.

Nortel Networks Corp. (NT) topped the NYSE's lists of most actively traded and biggest percentage gainer stocks. It posted stronger-than-expected fourth-quarter earnings and its first full-year profit since 1997 after Thursday's close. Shares of Nortel leaped $1.25, or 19 percent, to $7.82.

Struggling computer maker Gateway Inc. (GTW) rose 63 cents to $4.72 after it met forecasts by posting an operating loss of 15 cents per share for the fourth quarter late Wednesday. The company also announced it would buy privately held eMachines Inc. for $235 million, creating the nation's third-largest personal computer maker.

The Walt Disney Co. (DIS) fell 45 cents to $24.00 after a distribution deal between the entertainment giant and Pixar film studios, maker of the popular films "Toy Story" and "Finding Nemo," was not renewed. Pixar (PIXR), now free to find other distributors, was up $2.19 at $66.39.

ChevronTexaco Corp. (CVX) was down $1.14 to $86.17 despite reporting a 91 percent jump in fourth-quarter profits.

Wendy's International Inc. (WEN) was up 3 cents to $39.73 after reporting a 28 percent rise in profits, beating analysts' expectations by 2 cents per share. General Motors Corp. (GM) fell $1.29 to $49.42 after Goldman Sachs cut its rating on the stock.

The Russell 2000 index of smaller companies was up 0.90, or 0.2 percent, at 580.76.

Overseas, Japan's Nikkei stock average was flat. Britain's FTSE 100 closed down 0.5 percent, France's CAC-40 finished 0.7 percent lower and Germany's DAX index closed down 0.9 percent.

Reuters and the Associated Press contributed to this report.