Europe, JPMorgan weigh on stocks

A rare disappointing earnings report from JPMorgan Chase battered bank stocks on Friday and helped push the rest of the market lower. Rumors of imminent downgrades for the credit ratings of European governments -- which ultimately came to pass after the close of regular stock trading -- drove the euro down and sent investors streaming into U.S. debt.

The Dow Jones industrial average fell 48.96 points to close at 12,422.06, a drop of 0.39 percent. Markets were little changed late on Friday after France's finance minister confirmed that Standard & Poor's had stripped the country of its AAA credit rating.

Before the market opened, JPMorgan said quarterly profit declined 23 percent from a year earlier, slightly worse than what analysts expected. The bank's stock lost 2 percent. JPMorgan is widely considered one of the best-managed big banks. Other bank stocks declined as traders figured that if JPMorgan had trouble while 2011 came to a close, the rest of the industry probably did, too.

Meanwhile, the euro slipped to its lowest level in 17 months. After the markets closed in New York, S&P announced cuts for France, Austria, Italy and Spain.

In other trading on Friday, the S&P 500 index fell 6.41, or 0.49 percent to 1,289.09. The Nasdaq composite index fell 14.03, or 0.51 percent, to 2,710.67. Even with Friday's fall, all three indexes posted gains for the second straight week. The S&P 500 index is up 2.5 percent to start the year.

Among stocks making larger moves than the overall market Friday:

Diamond Foods Inc., which makes Emerald Nuts, plunged 10 percent after The Wall Street Journal reported that federal prosecutors had opened a criminal inquiry into its financial practices. The Journal also reported that two large shareholders had dumped most of their stakes in the company.

Safeway Inc., the grocery store chain, rose 1.8 percent. An analyst at Jefferies placed a "buy" rating on the stock on the expectation that the company will benefit from an improving job market, especially in California.

Alpha Natural Resources fell 10 percent, the largest loss in the S&P 500. The coal company bought Massey Energy last year, and the Justice Department is considering whether to prosecute the people who ran Massey when its Big Branch mine exploded in 2010.