NEW YORK (CNN/Money) - The U.S. stock market's two-session rally ended Friday after data showed that employers cut a surprisingly large number of jobs last month and manufacturers couldn't shake off an 18-month slump.
With the losses, the major indexes widened their declines for the year as investor grow antsy over the speed and strength of any economic recovery.
The Nasdaq composite index fell 22.78 points, or 1.2 percent, to 1,911.25, sending it 2 percent lower on the year. The Dow Jones industrials average shed 12.74, or 0.1 percent, to 9,907.26, widening its 2002 losses to 1.1 percent. Off 2.3 percent this year, the Standard & Poor's 500 index dipped 8.0, or 0.7 percent, to 1,122.20.
A closely watched manufacturing index rose in January but still signaled contracting factory activity. In the job market, the unemployment rate slipped, but employers cut nearly about twice as many jobs as economists expected.
"We viewed it as a disappointing report for the economy," said Mike Moran, economist at Daiwa Securities, who said unemployment dropped mostly because out of work Americans stopped looking for jobs.
Among session losers, trash hauler Waste Management saw its shares tumble after it cut profit forecasts. And by losing millions of dollars last year, the parent company of United Airlines underscored the travel business slump.
Still, the week contained positives. Saying the economy shows signs of improvement, the Federal Reserve appeared to wrap up a year-long interest rate cut campaign Wednesday. And the market mostly recovered from worries that a rash of companies would restate financial results the way Enron did before going bankrupt.
On the week, the Dow rose 0.7 percent, the Nasdaq shed 1.3 percent, and the S&P 500 lost 1 percent.
More stocks fell than rose. On the New York Stock Exchange, declining issues edged advancing ones 8-to7 as 1.3 billion shares traded. Nasdaq losers topped winners 4-to-3 as 1.7 billion shares changed hands.
In other markets, Treasury securities rose. The dollar dipped against the euro and yen.
Sifting the numbers
The Institute of Supply Management said its index of nationwide manufacturing rose to 49.9 in January. Close to expectations, the number was, for the 18th straight month, shy of the 50 reading that signifies growth.
Earlier, the government said the unemployment rate took a surprise dip in January, falling to 5.6 percent from 5.8 percent even as 89,000 jobs disappeared last month.
Still, January's job losses are a major improvement from prior months such as November, when employers cut 331,000 jobs.
"These are strong numbers, but they are not conclusive numbers," Labor Secretary Elaine Chao told CNNfn's Market Call.
Some predicted payrolls would rise in January, a month when new jobless claims fell and the Federal Reserve signaled an end to its year-long interest rate cut campaign.
Separately, the University of Michigan said its final reading on January consumer sentiment rose to 93 from 88.8 in December as consumer attitudes stabilize following the Sept. 11 terrorist attacks on the United States.
Surprisingly, the economy expanded in the last three months of 2001, the government said Tuesday. Hours later, Federal Reserve policy makers held steady on borrowing costs.
But companies are having trouble growing profits, which probably fell more than 20 percent in the December quarter -- their fourth straight quarterly decline.
What a Waste!
The third-biggest loser on the NYSE, Waste Management (WMI: down $3.69 to $25.13, Research, Estimates), the nation's largest waste disposal firm, warned that fourth-quarter earnings will fall below Wall Street estimates.
United Airlines' parent UAL (UAL: down $1.27 to $13.43, Research, Estimates) saw its quarterly loss widen to $640 million, or $11.74 a share, in the fourth quarter as the industry suffered from the slowdown in travel related to the Sept. 11 terrorist attacks.
The Dow's second-biggest gainer, media company Walt Disney (DIS: up $1.39 to $22.45, Research, Estimates), said late Thursday its fiscal first-quarter earnings tumbled but still surpassed forecasts by 5 cents a share. It's been a tough year for Disney, whose shares are off 40 percent from their 52-week high.
But no stock suffered more Friday than Regeneration Technologies (RTIX: down $5.19 to $4.96, Research, Estimates). The company, which processes human bone, cartilage, tendon and ligaments for use in surgical operations, delayed release of its fourth-quarter results and said its chief financial officer resigned.
Among gainers, software maker Accelio (ACLO: up $0.83 to $2.75, Research, Estimates) rallied after agreeing to be acquired by Adobe Systems, the maker of graphics software. Adobe (ADBE: up $2.23 to $35.93, Research, Estimates) also said it's on track to earn profit of 20 cents a share in the current quarter.
U.S. regulators approved Amgen's (AMGN: up $2.38 to $57.88, Research, Estimates) Neulasta, a longer lasting and potentially bigger selling version of Neupogen, its No. 1 selling immunity boosting drug.
Tyco International (TYC: up $0.48 to $35.63, Research, Estimates) remained the NYSE's most active stock, as investors sort through the rumors of questionable accounting that have hammered the conglomerate's shares this year.
But that slide came to a halt Wednesday when two Tyco executives pledged to buy 1 million shares.
Friday's biggest losers where large Nasdaq stocks including Sun Microsystems (SUNW: down $0.39 to $10.37, Research, Estimates), Oracle (ORCL: down $0.87 to $16.39, Research, Estimates), and WorldCom (WCOM: down $0.44 to $9.61, Research, Estimates). 
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