The stock market fell Friday after a disappointing gross domestic product reading added to investors' discomfort about the strength of the economic recovery. Financial shares rose on relief that a banking overhaul bill is in hand.
The said GDP, the broadest measure of the economy's health, at a 2.7 percent annual pace in the first quarter, rather than the 3 percent it previously estimated. The report follows a string of weaker-than-expected economic numbers in the past week and raised investors concerns about the recovery.
Uneasiness about the GDP report tempered investors' upbeat reaction to the financial regulation bill that lawmakers agreed on early Friday. The bill would regulate banks' ability to trade in derivatives, but the rules are less strict than investors had feared.
Derivatives are complex securities that companies and investors often use to hedge against losses. But some derivatives are purely speculative investments, and some of this type of derivatives have been blamed for contributing heavily to the collapse of the housing market and the 2008 financial crisis.
One investor concern was alleviated: A plan that would have had banks paying for the costs of unwinding mortgage giants Fannie Mae and Freddie Mac, was not included in the bill that will now go to the House and Senate for final approval.
"The bill could have been a lot worse," said Alan Valdes, vice president at Hilliard Lyons in New York. "It's a bill we can live with."
That pushed bank stocks higher: U.S. Bancorp rose 2.1 percent, while Bank of America added 1.3 percent. Some of the big Wall Street banks that will see the most changes from the bill also edged higher in part on relief of knowing what is in the legislation and in part because not all parts of the overhaul were as onerous as feared. Goldman Sachs Group Inc. rose 1 percent, while JPMorgan Chase & Co. gained 1.4 percent.
In late morning trading, the Dow Jones industrial average fell 42.55, or 0.4 percent, to 10,110.25. The broader Standard & Poor's 500 index fell 2.49, or 0.2 percent, to 1,071.20, and the Nasdaq composite index fell 4.78, or 0.2 percent, to 2,212.64.
Trading was expected to be heavy and volatile because Friday is the day that stocks within the Russell indexes are being added and deleted. That forces investors to buy and sell certain stocks if they have portfolios that follow the indexes.
The Russell 2000 index of smaller companies rose 3.06, or 0.5 percent, to 636.23.
Treasury prices rose, driving down interest rates. The 10-year Treasury note's yield fell to 3.10 percent from 3.14 percent late Thursday.
The euro, which investors have been treating as a measure of confidence in Europe's ability to resolve its economic problems, was down at $1.2288.
Crude oil rose 86 cents to $77.37 on the New York Mercantile Exchange.
Investors are cautious after the latest economic reports have cast doubt on the strength of the recovery. On Thursday, a disappointing durable goods orders report from the government and downbeat forecasts from analysts raised questions about manufacturing and consumer spending.
Investors are waiting to see what news comes out of the G20 meeting being held this weekend in Toronto. The world economy, including Europe's debt problems, will dominate the talks. President Barack Obama will be among the leaders attending the meeting.
U.S. Bancorp rose 47 cents, or 2.1 percent, to $23.08, while Bank of America climbed 19 cents, or 1.3 percent, to $15.21.
Goldman Sachs rose $1.38, or 1 percent, to $136.36 and JPMorgan advanced 52 cetns, or 1.4 percent, to $38.55.
Four stocks rose for every three that fell on the New York Stock Exchange, where volume came to 260 million shares, compared with 267 million traded at the same point Thursday.
The FTSE-100 index in London fell 0.9 percent, while Paris' CAC-40 index fell 1 percent and Frankfurt's DAX index lost 0.6 percent. Earlier, the Nikkei 225 index in Tokyo closed down nearly 2 percent.