Updated from 4:04 p.m. EST

Stocks closed sharply lower Friday, with all the major indices losing over 1% amid a lack of resolution in the hunt for terrorists and a wave of options and futures expirations. Semiconductor stocks led the way lower.

The Dow lost 109.18 points, or 1.06%, to close at 10,186.60; the S&P 500 was off 12.59 points, or 1.12%, to 1109.73; and the Nasdaq closed down 21.97 points, or 1.12%, to 1940.47.

Volume on the New York Stock Exchange was over 1.4 billion shares, while over 1.6 billion shares changed hands on the Nasdaq. Decliners outpaced advancers by about 3 to 2 on both exchanges.

In the wake of a devastating terrorist attack in Spain, the three indices suffered their second week of losses in a row. The Dow lost 0.5%, the S&P shed close to 1% and the Nasdaq was down 2.2%.

"With options expiration, you often get a little unwinding sometimes at the close, and I think that's what we're seeing here," said Peter Dunay, chief market strategist at Wall Street Access. "The trend has been to pull back, and we keep getting these bounces on light volume. And then, when we add expirations to this stuff, it exacerbates the moves a little bit. So it's really unwinding here. You can feel it in the last hour."

Thousands of Pakistani army reinforcements are reportedly joining a major offensive Friday in tribal border villages where al Qaeda's No. 2 leader, Ayman al Zawahri, is thought to be surrounded. Afghan authorities reported the arrests of "semi-senior" terrorist leaders on their side of the border.

Dunay thinks the market will stay in a corrective mode until earnings season gives investors something to bet on. "Ahead of that, people are being cautious; they're just looking for a floor," he said. "The terrorism news out of Pakistan might be positive today, but at the same time, it's still a reminder of the terrorist threat element out there that creates an overall mood of uncertainty in the markets."

Meanwhile, Friday was a so-called "quadruple-witching" options and futures expiration, an event that sometimes creates volatility in the stock market as traders unwind existing hedges and roll into new ones and it proved to be the case today.

Paul Mendelsohn, chief investment strategist at Windham Financial Services, said that traders are confused about what side they should take in this market. "We've had all these scares and bad news, and there's also some positive news out there, so we've got this scale that's balancing back and forth as we come into the options and futures expiration," he said. "It's been very bizarre. I think that with the possibility of this al Qaeda leader being captured in Pakistan, traders wouldn't want to be too short going into the weekend."

"The news and the rumors, hitting at this point in time, it's uncanny," Mendelsohn added. "I just think we're going to see a lot of volatility today. It could be like a ping-pong match."

The 10-year Treasury note traded down 8/32 to yield 3.78%, while gold edged up. Crude oil traded up 15 cents on the Nymex to $38.08. The dollar was weaker against the yen and euro.

Overseas markets were mixed, with London's FTSE 100 up 0.4% to 4418 and Germany's Xetra DAX down 0.2% to 3819. In Asia, Japan's Nikkei fell 0.6% to 11,419, while Hong Kong's Hang Seng gave up 0.2% to 12,790.

The Philadelphia Semiconductor Index was off about 3.6% after Taiwan Semiconductor ( TSM) said it would scale back expansion because of fears of overcapacity in China. The world's largest chipmaker believes semiconductor growth could slow to 10% next year from more than 25% this year. Its shares closed down 20 cents, or 1.9%, to $10.18.

Schwab Soundview upgraded Lucent ( LU) shares to outperform and raised its price target to $5 from $3.50. The brokerage cited improving fundamentals in its optical and wireless-equipment businesses. The shares closed down 6 cents, or 1.5 %, to $3.98.

Adobe ( ADBE) was up about 9.9% after the software company posted a 43% jump in first-quarter revenue compared with last year, and blew away earnings estimates. Adobe expects second-quarter revenue to range from $365 million to $385 million and earnings to range from 33 cents to 39 cents a share. Analysts were expecting earnings of 34 cents a share on $366.5 million in revenue. The shares closed off $3.58 to $39.85.

McDonald Investments downgraded United Technologies ( UTX) to hold, citing concern about an engine contract for Boeing's ( BA) planned 7E7 jet for which United Technologies is competing. Shares closed $2.43, or 2.8%, to $85.40.

Nike ( NKE) said after the bell that per-share earnings jumped 57% in the third quarter as revenue rose 21% to $2.9 billion. New orders were up almost 10% from a year ago, reflecting strength in the U.S. and Asia.

No major economic releases are scheduled on Monday. Market-watchers trying to gauge shopping trends will be waiting for the revised consumer sentiment index numbers due out from the University of Michigan on Thursday. Analysts expect a reading of 94, down slightly from the preliminary reading of 94.1

Earnings releases are scheduled before the opening bell from Carnival ( CCL), expected to report first-quarter earnings of 22 cents a share, matching its performance in the same quarter last year; and Walgreens ( WAG), which is expected to report second-quarter earnings of 42 cents a share, compared to last year's 36 cents a share.

More from Markets

Video: Here's What May Come Next for Theranos Founder and CEO Elizabeth Holmes

Video: Here's What May Come Next for Theranos Founder and CEO Elizabeth Holmes

Charlie Gasparino Says GE Is Reportedly Looking to Slash Its Dividend Again

Charlie Gasparino Says GE Is Reportedly Looking to Slash Its Dividend Again

GE Confirms $11.1 Billion Transportation Merger With Wabtec

GE Confirms $11.1 Billion Transportation Merger With Wabtec

Dow Leads Major Indices With Triple-Digit Rally

Dow Leads Major Indices With Triple-Digit Rally

Baidu Stock Plummets After COO Qi Lu Resignation

Baidu Stock Plummets After COO Qi Lu Resignation