There also was nervousness about what impact a recent sharp slide for the dollar and a robust commodities rally - including a jump in crude oil prices to $103 a barrel - will have on the economy and companies.
Stocks overall have performed better in February than in January, when credit market turmoil took a heavy toll on the major averages. But disappointing earnings results released late Thursday could cast a pall over the market and cause stocks to end the month on a wary note.
Insurer AIG announced a $5.29 billion quarterly loss and took a massive charge to account for its exposure to credit derivatives. The loss caught analysts off guard, as many had expected the company to report a profit.
Computer maker Dell had a 6 percent decline in quarterly profit and warned that its business could suffer from reduced customer spending. The company's most recent earnings also failed to meet analysts' expectations.
The futures contract for the Dow Jones industrial average fell 92 points, or 0.7 percent, to 12,485. Futures contracts for the Standard & Poor's 500 dropped 11.1 points, or 0.8 percent, to 1354.70 and the Nasdaq 100 lost 12.5 points, or 0.7 percent, to 1,771.8.
On Thursday, stocks sank as investors fretted over a rise in unemployment claims and the prospect of more bank failures. Federal Reserve Chairman Ben Bernanke warned that while large U.S. banks will likely recover from the recent credit crisis, other banks are at risk of failing.
The euro traded at $1.5215 in London, after reaching new highs on Thursday. The slide in the dollar has sent commodities prices soaring, and on Friday took oil to $103 a barrel for the first time.
Some relief for the ailing bond insurance industry is on the way. Billionaire investor Wilbur Ross agreed to invest up to $1 billion in Bermuda-based reinsurer Assured Guaranty Ltd. Assured does not have as much exposure to bad subprime debt as some of its rivals, but the deal still shows investors are willing to pump capital into an industry where troubles have hurt many classes of normally stable debt.
There was muted reaction to news from the Commerce Department that consumer spending, after adjusting for inflation, was flat for the second straight month in January. The report could support the argument that the economy is at risk of recession.
Consumer spending posted a 0.4 percent monthly rise, which was more than economists had been expecting. However, all of that gain came from a surge in inflation during the month. Incomes in January posted a 0.3 percent increase, a bit stronger than expected, but down from a 0.5 percent gain in December.
A closely watched gauge of consumer inflation posted a 0.4 percent increase in January and was up 3.7 percent over the past 12 months, the biggest year-over-year gain since 1991. This result will intensify worries that inflation is accelerating even as the economy slows.
The University of Michigan's final consumer sentiment reading for February is expected to fall to 69 from 69.6.
The Chicago purchasing managers index for this month is expected to have a reading of 48.5, which would show that the factory sector is shrinking in that region. The report is seen as a precursor of the national Institute for Supply Management report, due out Monday.
There were heavy losses in overseas trade. Tokyo's Nikkei closed down 2.32 percent. London's FTSE lost 1.06 percent, Paris' CAC 40 gave up 1.15 percent and Frankfurt's DAX forfeit 1.24 percent.
