"GE never surprises us, and they had the whole month of March to let us know, all they had to say is, for the love of God, business is actually slow!" said Art Hogan, chief market strategist at Jefferies & Co.
The Dow Jones Industrial Average shed 229.93 points to 12,354, readying it for a weekly loss of 2%.
Of the Dow's 30 components, 28 traded in the red.
General Electric fronted the blue chips' losses, its shares suffering their worst one-day percentage drop since October 1987. The shares were recently off 12.8%.
The industry bellwether reported a 6% decline in first-quarter net profit, largely over trouble in its financial-services businesses. .
"The lowering of industrial firms' 2008 expectations is in line with the credit troubles we have seen over the last six to eight months, and fuel the debate on how deep a slowdown we might be facing," said David Ader, U.S. government bond strategist at RBS Greenwich Capital.
The S&P 500 fell 22.81 points to 1,337.74, which would have it down 2.4% on the week, while the Nasdaq Composite suffered the biggest drop, sinking 54.92 points to 2,296.78, readying for a 3.1% decline from last Friday.
Industrials led S&P sector declines, off 1.5%, followed by information technology, down 1.4%. Only the utility sector advanced, up 0.2%.
"GE is the S&P 500 in and of itself -- what makes up the S&P? Financials, health care, technology, GE has got all of that," said Hogan.
Volume on the New York Stock Exchange topped 2 billion shares, with decliners outpacing advancing stocks more than 2 to 1. On the Nasdaq, 1 billion shares were exchanged, and declining issues outnumbered advancers nearly 3 to 1.
Weak dollar fuels import prices
Early economic data did little to offset the market's bearish tone, with the Labor Department reporting that a surge in prices for imported petroleum pushed the price of imports to their biggest monthly percentage increase since November 2007. .
"The surge in import prices is occurring because of weakness in the U.S. dollar and because of worldwide inflation pressures," said Tony Crescenzi, bond market strategist for Miller Tabak & Co.
A later report helped cement the session's bearish tone, with the consumer sentiment index compiled by the University of Michigan/Reuters sliding to its lowest level since March 1982. .
On the New York Mercantile Exchange, crude-oil futures gained with the benchmark contract up 16 cents to $110.27 a barrel. .
Gold futures also fell, with the contract for June delivery falling $4.80 to end at $927 an ounce. .
The dollar extended losses against the yen, losing ground against the euro as well. The dollar index was at 71.83, down from 72.148 in late North American trading Thursday.
On the corporate front, Frontier Airlines Holdings Inc. filed for Chapter 11 bankruptcy protection, joining a list of carriers making the move amid rising fuel prices and a slowing economy. .
Shares of Frontier plunged 68.8%.
European shares weakened as General Electric's earnings raised concerns for the health of its rivals overseas. .
In Asia, Japanese shares soared, led by financials. .
U.S. stocks finished Thursday with gains, as a broker's upgrade of several microchip stocks including Intel Corp. as well as an improved earnings forecast from Wal-Mart Stores helped set a positive tone. The Dow industrials ended up 54 points, the tech-heavy Nasdaq Composite rose 29 points and the S&P 500 added 6 points.
The fact that the Dow was up more than 120 points during Thursday's session only to lose most of its momentum by te close is "a telling sign that the market is currently lacking any type of follow-through or conviction," said Robert Pavlik, chief investment officer with Oaktree Asset Management.
By Kate Gibson