Wall Street is bracing for more volatility after a rocky week which saw stocks hit by renewed worries about the financial sector and failures in the US mortgage market.
Traders said a focus for investors would be the US Federal Reserve meeting on Wednesday and Thursday at which central bank policymakers are widely expected to keep the federal funds rate anchored at 5.25 percent.
The Dow Jones Industrial Average slid 2.05 percent in the week to Friday to 13,360.26.
The broad-market Standard & Poor's 500 declined 1.98 percent to 1,502.56 and the tech-packed NASDAQ composite fell 1.44 percent to end the week at 2,588.96.
Market observers said they would be poring over the Fed's statement next week for clues on its rate stance and what policymakers think about inflationary risks.
"We believe traders could decide to lighten their holdings ahead of the meeting even though most analysts do not expect the Fed to raise rates," said Frederic Dickson, an analyst at DA Davidson & Co.
The stock losses came amid data showing the US housing market still ailing. One report showed new home construction fell 2.1 percent last month.
Although the fall was in line with most forecasts, it underlined the lingering slump affecting the US housing market which has been stuck in a slump for over a year.
Investors were also keeping abreast of the Dow Jones takeover saga as General Electric and Britain's Pearson issued a statement saying they would not be mounting a counter-bid for the US media group which owns the Wall Street Journal.
The move increases the odds that Rupert Murdoch's News Corp. will succeed in its US$5 billion bid to take over Dow Jones. Such an outcome would swell Murdoch's already considerable global media holdings.
An upbeat note meanwhile was struck by Blackstone Group, which saw its newly issued shares close up 13 percent at US$35.06 on Friday following its eagerly-awaited initial public offering on the New York Stock Exchange.
Market participants said they would also be keeping a close eye on the Bear Stearns investment bank and brokerage in coming days. The bank moved on Friday to speed a US$3.2 billion bailout of a troubled hedge fund it manages hit by losses from subprime mortgages.
The yield on the 10-year Treasury bond declined to 5.138 percent from 5.171 percent a week earlier while the 30-year bond yield eased to 5.257 percent on Friday from 5.263 percent a week earlier.
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