Stocks fell Friday in volatile trading as investors cashed in options and futures contracts and kept an anxious eye on events unfolding on the Pakistan-Afghanistan border, where Pakistani troops launched new attacks on key Al Qaeda (search) leaders. All three major indexes saw a second straight losing week.

The Dow Jones industrial average (search) ended down 109.26 points, or 1.06 percent, at 10,186.52. The Standard & Poor's 500 Index (search) gave up 12.57 points, or 1.12 percent, at 1,109.75. The technology-laden Nasdaq Composite Index (search) fell 21.97 points, or 1.12 percent, to 1,940.47.

For the week, the Dow fell 0.5 percent, the S&P 500 fell 0.97 percent, and the Nasdaq ended down 2.2 percent.

Trading was feverish due to what's known as quadruple witching — the expiration of all index and equity options and futures contracts — and investors took the opportunity to adjust their portfolios and move into more defensive stocks. Technology shares, led by a sharp drop in semiconductors, suffered the biggest declines.

"A lot of this weakness is due to options activity," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "And as you look ahead over the next few weeks, there's a big tug of war between those who see positives in the market and those who don't. When that happens, you can expect to drift a little lower."

But many investors' attention was also focused on events outside the United States, as they sought signs that might alleviate fears about global security.

In Pakistan, troops surrounded between 300 and 400 foreign militants, who could include Ayman al-Zawahri, Usama bin Laden's (search) second-in-command, as well as other Al Qaeda fighters.

"Some traders were selling out of disappointment we didn't get a rally from capturing one of bin Laden's top guys today," said Tim Heekin, director of trading at Thomas Weisel Partners. "Anyone who was was anticipating a rally didn't want to go home long over the weekend."

Analysts said the next jobs report, due in two weeks, could boost shares somewhat, but most analysts agree there's very little that will move the market much higher in the near future. Stocks have been falling since mid-February on rising investor anxiety over the lack of job creation, a critical factor if the economic recovery is going to gain momentum.

The renewed terrorist activity, including last week's bombing of trains in Madrid, has exacerbated the market's uneasiness and raised the specter of a prolonged slump on Wall Street.

"This has been more of a lengthy correction than we might normally see," said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia. "It's really been dragged out because of the heightened terrorist activity, high oil prices and low job growth. That keeps everybody on the sidelines."

Even first-quarter earnings reports, due next month, may not be enough to shake the market out of the doldrums.

"I think this is going to be symptomatic of the kind of market we can expect for a while," said Subodh Kumar, chief investment strategist for CIBC World Markets. "I think we're still in a corrective phase, and I see us trading in this range through the first half of this year."

Merger rumors sent a number of shares higher. Kmart Holding Corp. (KMRT) rose rose $1.07 to $38.13 after speculation that Sears Roebuck and Co. (S) would make a bid for the discount retailer that recently emerged from bankruptcy protection. Sears fell $1.08 to $43.40. 

Sprint Corp. (FON) slipped 1 cent to $17.65 after a media report noted the company is now free to be acquired and could actively pursue suitors as part of the deal with BellSouth Corp. that sent Gary Forsee to Sprint as chief executive a year ago. Britain's Vodafone and Verizon Communications, up 10 cents at $37.47, are possible buyers.

Sporting apparel giant Nike Inc. (NKE) reported a 61 percent jump in third-quarter earnings. Nike was up 5 cents at $76.87.

Adobe Systems Inc. (ADBE) jumped $3.58 to $39.85 as it doubled its income in the latest quarter, soundly beating Wall Street estimates.

Defense company United Technologies Corp. (UTX) was the biggest drag on the blue-chip Dow, after a Wall Street analyst voiced uncertainty over whether Boeing Co. would select UTX's jet engine for its new 7E7 airplane.

UTX shares sank $2.43, or 2.8 percent, to $85.40. The company's Pratt & Whitney unit is competing against General Electric Co. and Rolls-Royce Plc to make the engines for an estimated 2,000 7E7s.

Computer network equipment maker 3Com Corp. (COMS) slipped 37 cents to $6.69 after reporting a wider-than-expected loss for the quarter.

Volume was active, with roughly 1.44 billion shares changing hands on the New York Stock Exchange, and about 1.62 billion shares traded on the Nasdaq. Decliners beat advancers by a ratio of 20-to-13 on the NYSE, and by about 19-to-12 on the Nasdaq.

The Russell 2000 index of smaller companies was down 3.81, or 0.7 percent, at 570.74.

Overseas, Japan's Nikkei stock average lost 0.6 percent. Britain's FTSE 100 closed up 0.5 percent, France's CAC-40 gained 0.7 percent for the session, and Germany's DAX index fell 0.2 percent.

Reuters and the Associated Press contributed to this report.