The data offset upbeat earnings from Microsoft Corp., which provided mild support for the technology sector.
"The problem with today's GDP number is what happens after earnings," said Barry Hyman, market strategist at EKN Financial Services. "We need a positive economic background for the market to continue its upward trend, so I'd expect some concern to re-enter the market based upon that GDP number."
Still , the market took the news in stride. The Dow Jones Industrial Average was recently up 2.7 points at 13,108, after gyrating between positive and negative territory. 19 of its 30 components fell.
Weighing on the Dow were shares of General Motors Corp. , Home Depot Inc. , Intel Corp. , and JP Morgan Chase & Co. .
But Microsoft bucked the trend, providing support for the blue-chip average. Its shares were up 4.8% after the software giant posted a 65% profit rise, buoyed by sales of its new Vista operating system.
And General Electric Co. also gained, rising 2.3% after Citigroup suggested the company would benefit from spinning off its TV networks, movie studios and mortgage lending units.
The S&P 500 fell 1.7 points to 1,492, while the Nasdaq Composite 2.8 points to 2,557.
Trading volumes showed 533 million shares exchanging hands on the New York Stock Exchange and 851 million shares on the Nasdaq stock market. Declining issues outpaced gainers by 2 to 1 on the NYSE and by 2 to 1 on the Nasdaq.
By sector, computer technology , software , and networking advanced, while airlines , transportation and oil fell.
Microsoft's earnings provided support for technology shares, but the chip sector was under pressure after Broadcom's second-quarter revenue forecast didn't meet expectations. The stock fell 4.4%.
And SanDisk fell 2% after saying weak prices for flash-memory chips will continue through the summer.
Among internet shares, Amazon.com lost 1.8% after being downgraded to hold from buy at Stifel Nicolaus, due to concerns over valuation. The Internet-based retailer reached a seven-year high of $63.04 in intraday trading on Thursday.
Airlines slumped after JP Morgan downgraded nearly the entire sector. Continental Airlines Inc. , UAL Corp. and AMR Corp. fell over 3% each.
Prior to earnings season, during which economic concerns have been set aside, investors worried that inflation pressures were preventing the Federal Reserve from cutting interest rates to stave off a hard landing.
Friday's data will likely revive those concerns.
Hit by rising energy prices and a weak housing market, the U.S. economy slowed to 1.3% real annualized growth in the first quarter, the weakest expansion in four years. Economists polled by MarketWatch were expecting growth of 1.7%.
"Growth at this pace will loosen the labor market," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "The Fed will blink soon."
Yet, at the same time, employment costs continued to rise in the first quarter, gaining 0.8% compared with 0.9% in the fourth quarter. Economists expected a 0.9% increase.
Meanwhile, the University of Michigan's final consumer-confidence reading came in at 87.1 for April, a slight drop from March but above expectations for a reading of 85.0.
According to EKN's Hyman, the Fed coming to the rescue of the economy -- and earnings - is "still a long way away."
"I don't think the Fed can ease unless it sees the whiles of the eyes of a recession, because inflation is not easing," he said.
Following the data, the dollar resumed its downward course against both the euro and the yen. Separately, the Banof Japan as expected held interest rates at 0.5%.
And crude-oil futures dropped 14 cents to $64.94 a barrel.
Among oil shares, Chevron Corp. dropped 0.5%. It earlier reported first-quarter earnings rose above year-earlier levels and topped expectations, while revenue declined.
Gold futures bounced back after falling sharply Thursday, gaining $3.50 to $681.50 an ounce.
On Thursday, U.S. stocks closed with another record level for the Dow industrials and a 6.6-point rise for the Nasdaq Composite, which was boosted by an upbeat earnings report from Apple Inc. The S&P 500 closed 1.2 points lower.
By Nick Godt