Despite the losses, the major indexes eked out the first winning week of 2005.

While investors were cheered by P&G's bid for Gillette and strong profits from Microsoft Corp., surprisingly weak economic data robbed the markets of any buying momentum. The Commerce Department reported that the GDP — the value of all goods and services produced in the United States — rose at an annual rate of just 3.1 percent in the fourth quarter, the lowest gain in seven quarters. Economists had expected a 3.5 percent rise.

With elections in Iraq on Sunday, a Federal Reserve meeting beginning Tuesday and the Labor Department's monthly job creation report due next Friday, investors used the GDP figure as another reason to sell stocks ahead of these uncertainties.

"The thought is that the GDP was a disappointment, but I don't know if anybody really cares about GDP. It's not the end of the world," said Brian Pears, head equity trader at Victory Capital Management in Cleveland. "This market has been in a very strong bearish trend for the entire year, such as it is. It's like people walk in every day to find a reason to justify that trend because they're afraid."

The Dow Jones industrial average fell 40.20, or 0.38 percent, to 10,427.20.

Broader stock indicators also gave ground. The Standard & Poor's 500 index was down 3.19, or 0.27 percent, at 1,171.36, and the Nasdaq composite index lost 11.32, or 0.55 percent, to 2,035.83.

The market finally paid attention to strong earnings and generally positive economic data over the past week, resulting in a strong two-day rally. However, anxiety over the Iraqi elections and today's GDP number erased much of those gains.

Nonetheless, the major indexed were positive for the week — barely. The Dow rose 0.33 percent, the S&P 500 was up 0.3 percent and the Nasdaq climbed a meager 0.08 percent. That reversed a three-week slide for all three indexes.

Wall Street had expected the economy to slow somewhat from the 4 percent annual pace posted in the third quarter of 2004, but the GDP reading showed far more of a slowdown than analysts had believed. That raises concerns about profit growth for future quarters as well as the health of the labor market.

The Federal Reserve is scheduled to meet next Tuesday and Wednesday, and is widely expected to raise the nation's benchmark interest rate to 2.5 percent from the current 2.25 percent. While there have been concerns about rising prices and inflation, slower economic growth could keep the Fed from a more aggressive rate policy.

"I definitely think the GDP backdrop is troubling. I think oil prices had a much bigger impact on the economy than people thought, and oil prices actually went down in the quarter," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "I thought a 3.5 percent increase was in the bag. Now we'll see what the Federal Reserve thinks next week."

With economic uncertainty continuing, American corporations are holding fast to large reserves of cash, hoping for a better economic environment in which to expand. And as the recent merger activity has shown, many companies are opting to use that cash to buy other companies.

Procter & Gamble's bid for Gillette would create a consumer products maker with a wide swath of brand names in healthcare products, food and other consumer staples. Berkshire Hathaway founder Warren Buffett, the single largest Gillette shareholder, called the merger "a dream deal," and said he would buy up P&G shares as well. P&G dropped $1.17 to $54.15 on the news, while Gillette surged $5.92, or 12.96 percent, to $51.60.

Microsoft edged 7 cents higher to $26.18 after its earnings, announced late Thursday, surpassed Wall Street's profit forecasts by 2 cents per share. The software giant and Dow component also reported its first profitable quarter for its home and entertainment division, thanks to strong sales of its Xbox Live online game service and the video game hit Halo2.

Fellow Dow industrial McDonald's Corp. saw its fourth-quarter profits triple from a year ago, though the fast-food chain fell short of Wall Street profit estimates by a penny per share. Revenues rose 10 percent from the year-ago quarter. McDonald's was down 12 cents at $32.

The Boeing Co. scored a major coup over rival aircraft manufacturer Airbus SAS with a $7.3 billion deal to provide six Chinese airlines with 60 of the company's new 7E7 Dreamliner passenger jets. It was the biggest order yet for Boeing's newest jet. Boeing nonetheless fell $1.05 to $49.92.

Merck & Co. plunged $3.16, or 10.13 percent, to $28.02 after a federal court ruled that the drug maker will lose patent protection on Fosamax, the company's second best-selling drug, in 2008 instead of 2018. The U.S. Securities and Exchange Commission also announced a formal probe into the company's marketing of the discredited arthritis drug Vioxx.

Declining issues outnumbered advancers by more than 4 to 3 on the New York Stock Exchange, where preliminary consolidated volume came to 2.039 billion shares, compared with 2.042 billion on Thursday.

The Russell 2000 index of smaller companies was down 3.90, or 0.63 percent, at 613.00.

Overseas, Japan's Nikkei stock average fell 0.18 percent. In Europe, Britain's FTSE 100 closed down 0.42 percent, France's CAC-40 dropped 0.54 percent for the session, and Germany's DAX index lost 0.35 percent.

The Dow Jones industrials ended the week up 34.21, or 0.33 percent, finishing at 10,427.20. The S&P 500 index gained 3.49, or 0.3 percent, to close at 1,171.36.

The Nasdaq rose 1.56, or 0.08 percent, during the week, closing Friday at 2,035.83.

The Russell 2000 index, which tracks smaller company stocks, closed the week 1.92, or 0.31 percent, higher at 613.00.

The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended the week at 11,531.25, up 23.96 points from last week. A year ago the index was 11,016.96.