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Stocks Socked Despite Upbeat China Numbers; Apple Falls

NEW YORK ( TheStreet) -- Major U.S. stock averages slumped Friday as persistent worries about the ability of the U.S. to avert the so-called fiscal cliff and deep losses in Apple (AAPL - Get Report) shares overshadowed encouraging Chinese manufacturing and U.S. industrial output data.

Apple shares sank 3.9% after a Delaware court ruled Thursday that the iPhone infringes upon three patents held by Sony (SNE) and Nokia (NOK).

Analysts were also playing a part in Apple's decline, with UBS analyst Steven Milunovich cutting his price target to $700 from $780 on lower-than-expected iPhone and iPad shipments in the first calendar quarter.

President Barack Obama and House Speaker John Boehner met Thursday night at the White House to discuss the U.S. budget, their first in-person meeting in four days.

Statements from the White House and Boehner's office both described the talks as "frank," adding that the "lines of communication remain open."

"Enthusiasm for equities continues to be tempered by the lack of progress by the White House and Congress on the fiscal cliff negotiations," said Addison Armstrong, senior director of market research at Tradition Energy.

Michael Lewis, global head of commodities research at Deutsche Bank, said despite the Fed's implementation of QE4, "the market remains focused on the potential adverse liquidity impact of the U.S. fiscal cliff."

"Furthermore, the Fed's targeting of U.S. unemployment as a tool to gauge monetary accommodation could be taken as hawkish given the apparent decline in U.S. unemployment over the past year," added Lewis.

The Dow Jones Industrial Average was fell 36 points, or 0.27%, at 13,135. Friday's dip left the blue-chip index down 0.15% for the week.

Breadth was negative, with laggards outpacing advancers 19 to 11. American Express (AXP), Microsoft (MSFT) and Merck (MRK) and Disney (DIS) were laggards.

Alcoa (AA), Caterpillar (CAT), Cisco (CSCO) and Hewlett-Packard (HPQ) were the top percentage blue-chip gainers.

United Technologies (UTX) shares lost 0.52% after the company provided a 2013 profit outlook of between $5.85 a share and $6.15 a share and sales of between $64 billion to $65 billion; analysts are looking for earnings of $6.12 a share on revenue of $66.4 billion.

The S&P 500 fell 6 points, or 0.41%, at 1414. The S&P shed 0.32% for the week. The Nasdaq decreased 21 points, or 0.70%, at 2971. The tech-heavy index dipped 0.23% for the week.

The technology sector sank 0.95%. Sector decliners in the broader market also included utilities, health care and energy. Basic materials, conglomerates and transportation were among the sector gainers.

Decliners edged advancers 1.1-to-1 on the Big Board, and incrementally on the Nasdaq. Volumes totaled 3.19 billion shares on the New York Stock Exchange and 1.80 billion shares on the Nasdaq.

In economic news Friday on China, the world's second largest economy, the HSBC December flash purchasing managers' index for the country expanded to a 14-month high of 50.9, exhibiting five consecutive months of increases. A reading above 50 signifies growth.

"China's growth has a domestic edge to it, while the Japanese growth is reflecting weakness in international demand," noted Paul Donovan, global economist at UBS.

In the U.S., the Federal Reserve reported Friday that industrial production rose 1.1% in November following a downwardly revised 0.7% decline in October. Capacity utilization rose to 78.4% from a downwardly revised 77.7%

Economists, on average, had predicted that industrial production would rise 0.3% in November and capacity utilization would increase to 78%.

"While much of the rebound could be attributed to the bounce-back from the Hurricane Sandy impact, the strong surge in the production of motor vehicles and machinery (after four months of weakness) suggest that overall demand (both for consumer and investment goods) is beginning to enjoy a period of rebound," said Millan Mulraine, an economic strategist at TD Securities.

The Bureau of Labor Statistics reported Friday that the consumer price index fell 0.3% in November, down from a 0.1% rise in October. Economists forecast a 0.2% decline.

The core CPI rose 0.1%, down from a 0.2% increase the prior month. The consensus expectation was for a 0.2% increase.

European markets traded mixed as eurozone manufacturing PMI data missed expectations, Germany's December composite output PMI increased to 50.5 and Standard & Poor's slashed its outlook on the U.K.'s triple-A rating to negative from stable.

The FTSE 100 in London closed down 0.13% and the DAX in Germany finished up 0.19%.

Japan's Nikkei average closed down 0.05% and Hong Kong's Hang Seng index settled up by 0.71%.

Gold for February delivery closed up 20 cents at $1,697 an ounce at the Comex division of the New York Mercantile Exchange, while January crude oil contracts rose 84 cents to settle at $86.73 a barrel.

The benchmark 10-year Treasury rose 9/32 to dilute the yield to 1.706%. The dollar was down 0.44%, according to the U.S. dollar index .

In corporate news, Adobe Systems (ADBE - Get Report), the software maker, posted fiscal fourth-quarter results on Thursday that topped analysts' expectations.

The maker of Photoshop earned 61 cents a share on an adjusted basis in the quarter; analysts were looking for profit of 56 cents.

Adobe said fourth-quarter revenue was $1.153 billion, up from $1.152 billion a year earlier; Wall Street was expecting revenue of $1.1 billion.

Adobe shares have been upgraded to outperform from underperform at JMP Securities.

Shares surged 5.8%.

UBS (UBS) is close to an agreement to pay more than $1 billion to resolve allegations the Swiss bank tried to rig interest-rate benchmarks -- including the London interbank offered rate -- to boost trading profits, The Wall Street Journal reported, citing people briefed on the negotiations.

Shares were up 0.80% on Friday.

VeriFone Systems (PAY) issued a forecast Thursday for the first quarter that was below Wall Street estimates.

The electronic-payments company said it expects first-quarter adjusted earnings of 70 cents to 73 cents a share on revenue of $490 million to $500 million.

Analysts are calling for first-quarter earnings of 75 cents a share on revenue of $498 million.

Shares tumbled 10.9%.

TiVo (TIVO) shares spiked 2.1% after the company was initiated with a buy at Goldman Sachs.

Cytori Therapeutics (CYTX) shares plunged 14.5% as the company announced the public sale of 7.02 million common shares at $2.85 a share.

Alexza Pharmaceuticals (ALXA - Get Report) shares surged 11.5% as the company and Grupo Ferrer Internacional announced that the Committee for Medicinal Products for Human Use adopted a positive opinion recommending that the Adasuve treatment for schizophrenia or bipolar disorder be granted European Union centralized marketing authorization.

-- Written by Andrea Tse and Joe Deaux in New York.

>To contact the writer of this article, click here: Andrea Tse.

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