Wall Street sags; S&P eyes first monthly loss since August

NEW YORK (Reuters) - U.S. stocks fell on Friday, with the S&P 500 on track for its first monthly loss since August as disappointing corporate earnings from big companies like Amazon.com and concerns about the euro zone and emerging markets kept investors on edge.

But the major stock indexes came well off their session lows by afternoon, with the S&P 500 recovering from most of its loss.

"I think the shorts are taking off some risks, heading into the weekend. It's been a decent couple of weeks for them, and they are adjusting their positions as this week, this month comes to an end," said JJ Kinahan, chief strategist at TD Ameritrade in Chicago.

The Dow Jones industrial average <.DJI> fell 71.51 points or 0.45 percent, to 15,777.10. The S&P 500 <.SPX> declined 3.74 points or 0.21 percent, to 1,790.45. The Nasdaq Composite <.IXIC> dropped 5.764 points or 0.14 percent, to 4,117.361.

For the month of January, the S&P 500 was down 3.1 percent. For the week, though, the index was flat in afternoon trading.

One of the biggest decliners of the day was Amazon.com Inc , which fell 9.4 percent to $365.09 a day after the world's biggest online retailer missed Wall Street's estimates for the crucial holiday period. Amazon also cautioned investors about a possible operating loss this quarter as shipping costs climb.

Chevron Corp was the Dow's biggest decliner after the second-largest U.S. oil company said its fourth-quarter profit dropped 32 percent as refining margins and production fell around the world. The stock was off 3.2 percent at $112.63.

Mattel Inc shares slid 13 percent to $37.43 after the world's largest toy company reported a quarterly profit that missed Wall Street's estimates.

Wal-Mart Stores Inc shaved its outlook for the fourth quarter and full year to account for special items, including those tied to store closures and the restructuring of Sam's Club. The stock was up 0.5 percent at $75.10 after trading in negative territory for most of the morning.

Global equity markets have been rattled over the past week by the outlook for emerging markets. A rout in emerging currencies has spurred some central banks to raise interest rates or intervene in markets to limit the swings, in turn pressuring bond and stock holdings and forcing investors to exit.

"Interest-rate increases from Turkey, India and South Africa this week alone served to briefly spark vigor back into investors' strides," said Andrew Wilkinson, chief market analyst at Interactive Brokers LLC in Greenwich, Connecticut.

"However, the week is ending on a bad note as investors reflect on the earlier catalyst indicating potential sluggish growth for the world's No. 2 economy, China. Pressure has now returned to haunt the key emerging market currencies whose central banks have so far raised the cost of borrowing, but pressure valves are also now being tested elsewhere."

Among other earnings, MasterCard Inc reported a 3 percent rise in quarterly profit but missed analysts' average forecast as expenses rose. The stock fell 5.5 percent to $75.37.

Google Inc's quarterly revenue beat Wall Street's target despite an ongoing decline in prices for its online ads and deepening losses at Motorola, the handset-making division to be sold to China's Lenovo <0992.HK>. Google shares gained 3.8 percent at $1,178.

Zynga Inc shares jumped 19.5 percent to $4.26. The company, known for its "Farmville" game, said late Thursday that it will cut 15 percent of its workforce to slash costs and buy mobile game developer NaturalMotion for $527 million to refresh a stalled games pipeline.

EURO-ZONE AND U.S. DATA

Weighing on investor sentiment was data showing that inflation in the euro zone slowed this month to 0.7 percent from 0.8 percent in December. That reading confounded expectations for an increase to 0.9 percent and matched a low hit last October. The European Central Bank responded by cutting its interest rates to record lows.

An unexpected drop in euro-zone inflation raises pressure on the ECB to consider fresh policy action next week to counter deflation risks and support a weak euro-zone recovery that may be faltering.

Meanwhile, U.S. consumer sentiment dipped slightly in January, with recent economic improvement not translating into expectations for future gains, according to Thomson Reuters/University of Michigan data.

Another report showed U.S. labor costs rose in the fourth quarter, but there was still little sign of wage inflation amid slack in the job market.

(Editing by Bernadette Baum and Jan Paschal)

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