NEW YORK ( TheStreet) -- U.S. stocks tumbled Friday, and the major averages lost well over 2% each during the session after a mix of quarterly reports forced participants to temper expectations about the corporate earnings season and consumer optimism appeared to drift to its lowest point in nearly a year.

The Dow Jones Industrial Average fell 261 points, or 2.5%, at 10,098. The S&P 500 finished 32 points lower, or 2.9%, at 1065, while the Nasdaq slipped 70 points, or 3.1%, to 2179.

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After starting the week on more hopeful terms, buoyed by the beginning of earnings season and trusting assessments from Intel ( INTC) and Alcoa ( AA), the major market averages lost their thrust and finished the week in the red. The S&P 500 led the declines, losing 1.2% for the week, while the Dow and the Nasdaq lost 1% and 0.8%, respectively, since last Friday's close.

Stocks surged late Thursday and pared most of their session losses, getting a lift on talk that Goldman Sachs ( GS) agreed to pay $550 million to settle civil fraud charges with the Securities and Exchange Commission. Also aiding the rally was news that BP's ( BP) temporary cap seemed to stop the flow of oil into the Gulf of Mexico.

But that late-day rise failed to carry over into the Friday session. With options expiration serving as a backdrop Friday, General Electric ( GE), Bank of America ( BAC) and Citigroup ( C) beat earnings expectations but also saw weaker revenue.

Late Thursday, Google ( GOOG) also offered a more muted assessment of its second-quarter performance by missing bottom-line targets on rising costs.

"I think there might have been a little euphoria built in to the market because of Intel ( INTC) earlier in the week, but today we're seeing more of a comeback to reality," said DA Davidson chief market strategist Fred Dickson, who cited the bottom-line miss from Google and top-line concerns on GE, Citigroup and Bank of America as weighing on sentiment. "It's a minor adjustment back to reality from thoughts that this was going to be a slam-dunk earnings season. We'll still be OK, but just not those euphoric levels some were expecting."

On the question of options expiration's role in today's market slump, Art Hogan, chief market strategist at Jefferies, said "it's part of the dynamic," though he also put more emphasis on the economic picture. Options expiration days typically help fuel selling and buying pressure. But while noting the tug-of-war within earnings and data that has dragged stocks back to levels seen at the end of last week and beginning of this week, Hogan said this earnings season, in general, will "have been a constructive event for this tape."

Despite reporting bleaker revenue on Friday, Citigroup beat analysts' profit expectations with a second-quarter profit of 9 cents a share. Wall Street had been looking for earnings of 5 cents a share for the quarter.

Bank of America reported a second-quarter profit of 27 cents a share, outpacing estimates for earnings of 22 cents a share, and said credit costs improved for a fourth consecutive quarter.

General Electric ( GE) reported a second-quarter profit of 30 cents a share, surpassing estimates for earnings of 27 cents a share. Sales fell 4% to $37.4 billion. Shares finished 4.6% lower today.

Overseas on Friday, Hong Kong's Hang Seng slipped 0.03%, and Japan's Nikkei fell 2.9%. The FTSE in London lost 1%, and the DAX in Frankfurt fell off 1.8%.

The Economy

Prices at the consumer level slipped 0.1% in June, the Department of Labor said Friday, supporting the view that inflationary pressures will remain muted for some time. The level was in line with economists' expectations. Excluding volatile food and energy costs, the core rate grew 0.2%, which was slightly stronger than the 0.1% uptick that Wall Street had projected.

After the opening bell, the University of Michigan said consumer sentiment took a big step back in July, which only helped accelerate stock losses. The consumer gauge read 66.5. Wall Street was anticipating a reading of 74.5, representing a decline from June's level of 76.

Company News

The bank earnings results weighed broadly on financial segment stocks, which was the sector under the most pressure during Friday's session alongside industrials. Shares of Bank of America led all laggards on the average, losing over 9%. Cisco Systems ( CSCO), American Express ( AXP) and GE also lost significant ground on the Dow. Though all 30 components finished in the red, Verizon ( VZ), Coca-Cola ( KO) and Procter & Gamble ( KO) saw far more limited losses on the blue-chip average.

The KBW Bank Index slumped 5.7% today.

Advanced Micro Devices ( AMD), helped by improving demand, reported a second-quarter profit beat of its own late Thursday, along with an upbeat view on third-quarter revenue.

Ingersoll-Rand ( IR) raised both profit and sales forecasts for the second quarter.

Mattel ( MAT), maker of such ubiquitous toy brands as Barbie and Hot Wheels, said second-quarter sales rose 13% since a year ago thanks to those very items. Revenue also got a lift from tie-ins with the movie Toy Story 3 and World Wrestling Entertainment. Still, the toymaker just missed profit estimates, though it matched sales forecasts.

Apple ( AAPL) shares turned positive and were trading 0.2% higher after CEO Steve Jobs said the company would offer free bumpers and refunds for iPhone 4 users unhappy with the phone's antenna issues.

Commodities and the Dollar

Crude oil for August delivery settled 61 cents lower to finish at $76.01 a barrel.

Elsewhere in commodity markets, the August gold contract traded $20.10 lower to settle at $1,188.20 an ounce.

The dollar was trading higher against a basket of currencies, with the dollar index up by over 0.2%.


The benchmark 10-year Treasury gained 18/32, diluting the yield to 2.929%.

The two-year note was ahead 1/32, decreasing the yield to 0.593%. The 30-year bond was gaining 25/32, diluting the yield to 3.944%.

--Written by Sung Moss and Melinda Peer in New York.

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