"The big question that still hangs over the stock market is [whether] the problems in housing and the credit markets [are] going to lead to an economic and earnings recession or not. Today is a day where it seems like yes," said Hugh Johnson, chairman of Johnson Illington Advisors.
The Dow Jones Industrial Average shed 178.1 points, or 1.3%, to finish at 13,339.8, with all but one of its 30 components hit with losses.
The Dow's decline gave it a weekly decline of 2.1%, its worst showing since the week ending Nov. 9, when the index fell 4.1%.
Unlike trade in recent sessions, financials did not lead the Dow's decline, with the index's hardest-hit including Alcoa Inc. , down 3.1%, and Home Depot Inc. , off 3.7%.
"The decline in the cyclicals, rather than the financials, seems to reflect the concerns raised by the strong inflation numbers. Namely that the Federal Reserve now has fewer options to deal with a possible economic downturn in 2008," said Frederic Ruffy, an analyst at Optionetics.
Another blue chip, Citigroup Inc. recovered from early losses only to fall into the red as the session neared an end, finishing 1% down in the wake of its downgrade by Moody's Investors Service in response to Citi's plan to move about $49 billion in assets from structured investment vehicles onto its balance sheet. .
The Dow's sole advancer proved to be Microsoft Corp. , which ended ahead 0.2%.
Off the Dow, active shares includes those of Black & Decker Corp. down 6.8% after the power-tool maker warned business conditions and an anticipated recall would dent current-quarter results.
Broader indexes fell as well, with the S&P 500 Index dropping 20.46 points, or 1.4%, to 1,467.95, a decline that gave it a weekly drop of 2.4%, vs. the 3.7% weekly slide it encountered in the second week of November.
The technology-heavy Nasdaq Composite Index fell 32.75 points, or 1.4%, to 2,635.74, which had it tallying a weekly loss of 2.6%. It fell an astounding 6.5% in the week ending Nov. 9.
Oil slips; gold dims
On the New York Mercantile Exchange, crude futures fell for a second day due to concerns that an economic slowdown would lower demand, with crude for January delivery slipping 98 cents to close at $91.27 a barrel. .
Elsewhere on the Nymex, gold fell $6 to finish the session at $798 an ounce.
Volume on the New York Stock Exchange came to 1.3 billion, and topped 1.9 billion on the Nasdaq. Decliners topped advancers on both exchanges, by nearly 4 to 1 on the NYSE and 3 to 1 on the Nasdaq.
CPI and Fed
Fueling the bearish sentiment was speculation that the latest round of data lessens the chances of another Federal Reserve interest-rate cut next month.
The 0.8 rise in the consumer-price index for November proved higher than the 0.7% expected. .
The CPI number is "very troubling," according to Johnson.
"The combination of [Thursday's] wholesale prices and today's consumer prices indicates the Federal Reserve was probably right in only reducing short-term rates 25 basis points," instead of the 50 basis-point cut investors had clamored for, he said.
Other data released Friday included the Fed's report of a slight rise of 0.3% in U.S. industrial production in November, after dropping 0.7% the month before. .
"Though credit-market turmoil will still argue for further easing in January, as does the weak fourth-quarter factory figures in today's industrial production report with big downward revisions, the Fed will face heightened stakes given worsening inflation risks," analysts at Action Economics said.
U.S. stocks remained under pressure Thursday, clsing mixed, though Honeywell International Inc.'s earnings forecasts helping lift sentiment on industrials. The Dow industrials ended up 41.1 points, while the Nasdaq ended the day down 2.65 points.
European shares were mixed.
In Asia, Japanese stocks led the region in a broad retreat.
By Kate Gibson