Dow falls after weaker-than-expected GDP

NEW YORK - Stocks ended April with a big loss Friday on disappointment with two economic reports and worries about a criminal investigation of Goldman Sachs.

Investors lost some of their optimism about the economy after the government's weaker-than-expected gross domestic product report and news of a drop in consumer sentiment. Reports that the government has started a criminal investigation of Goldman sent financial stocks tumbling. Investors feared that possible charges against the company could have a chilling effect on the banking industry.

The Dow Jones industrial average fell 158 points, and all the major indexes fell more than 1 percent.

The market ratcheted higher and lower this week on alternating spurts of optimism and pessimism about the economy. The Dow had three triple-digit moves. But analysts have been expecting a pullback after almost three months of mostly steady gains.

"The market may just be a little bit tired," said Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Conn. "A lot of good news is priced into the market."

The Dow posted its third straight monthly gain with a 1.4 percent advance for April. However it snapped an eight-week winning streak.

Friday's pullback began after the Commerce Department said the GDP rose at a 3.2 percent annual pace in the January-March period. That was below the 3.4 percent rate economists polled by Thomson Reuters had forecast.

While the GDP was up for the third straight quarter, it was down from the fourth quarter's 5.6 percent, a rate that was inflated by government stimulus spending and companies restocking their depleted inventories. For the economy to show healthy growth, it would have to grow at a faster pace than it did the first three months of the year. Growth would have to equal 5 percent for all of 2010 just to lower the average jobless rate for the year by 1 percentage point.

Analysts were relatively upbeat that the first-quarter growth rate, though slow, probably was good enough to help avoid a "double-dip" recession.

"GDP was slightly lower than expectations, but shows the economic recovery is probably sustainable," said Peter Cardillo, chief market economist at Avalon Partners Inc. in New York.

Investors were disappointed by a separate report from Reuters and the University of Michigan that showed consumer sentiment rose to 72.2 in April from a preliminary April reading of 69.5. However, it was still lower than March's 73.6. Economists had forecast a reading of 71.

The consumer sentiment report shows the "consumer isn't fully recovered," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

According to preliminary calculations, the Dow fell 158.71, or 1.4 percent, to 11,008.61. The Standard & Poor's 500 index fell 20.09, or 1.7 percent, to 1,186.69, while the Nasdaq composite index fell 50.73, or 2 percent, to 2,461.19.

Financial stocks were pulled down by Goldman. A person with knowledge of the matter told The Associated Press that the Justice Department has begun a criminal investigation of the bank over mortgage securities deals it arranged. The person spoke on condition of anonymity because the investigation is in a preliminary phase. The Securities and Exchange Commission has charged Goldman with civil fraud.

"They're really going after Goldman pretty hard," said Ryan Detrick, senior technical analyst at Schaeffer's Investment Research. "That's got people on edge."

A Standard & Poor's equity analyst downgraded Goldman's stock to a "sell" rating Friday. Its shares dropped more than 9 percent.