NEW YORK (CNN/Money) - U.S. stocks closed out a highly volatile week sharply lower Friday, although off their worst levels, on a weak employment report, a profit warning from Walt Disney, and a Goldman Sachs prediction that the Federal Reserve will be forced to cut interest rates by the end of the year.

The Dow lost 193.49, or 2.3 percent, to close at 8,313.13; for the week, it gained 0.6 percent. The Standard & Poor's 500 index declined 20.42, or 2.3 percent, to 864.24; for the week, it gained 1.3 percent. The Nasdaq composite fell 32.08, or 2.5 percent, to 1,247.92; for the week, it lost 1.1 percent.

Treasury prices rallied, sending the two-year note yield below 2.00 percent for the first time.

"We've got so many cross currents competing right now, and we're in this trading range. And I think we're gonna have this volatile trading range for a while," Peter Mancuso, a New York Stock Exchange specialist at Performance Specialist Group, told CNNfn's Street Sweep.

Although the period of reporting quarterly earnings is winding down, a few influential companies are due to report results next week, including Procter & Gamble (PG: up $1.97 to $89.84, Research, Estimates), Cisco Systems (CSCO: down $0.21 to $11.89, Research, Estimates), El Paso Energy (EP: up $0.05 to $15.30, Research, Estimates) and Qwest Communications (Q: up $0.08 to $1.58, Research, Estimates).

The Institute for Supply Management's report on the services sector of the economy and the Producer Price Index, a measure of prices for wholesale goods, are among the economic reports due out next week.

The declines Friday ended a tumultuous week in which stocks rallied sharply Monday on a strong dollar and what appeared to be improved psychology, and then zigzagged throughout the remaining four sessions.

"We have a lot of factors at play here. It's an accumulation of all the negative economic news this week, capped off by the jobless data this morning, bond yields declining so sharply, and the weak forecasts out of companies," said Donald Selkin, director of research at Joseph Stevens. "But what really accelerated the selling was the note out of Goldman Sachs about the Fed."

Around midday, Goldman Sachs issued a note saying that due to the increased slowdown in the markets and the economy, Fed officials are likely to ease rates by three-quarters of a percentage point in the fourth quarter.

Goldman also reduced its gross domestic product growth estimates for the rest of the year.

"Fed officials have undoubtedly been surprised by the recent weakness, given the tenor of Chairman (Alan) Greenspan's midyear testimony to Congress," the note read. "Accordingly, although Fed officials undoubtedly share our view that double dip (a second recession) is not the central case, we believe they will want to take out more insurance against that possibility."

A drop in interest rates can often be a boon to stock prices. However, in this case, some investors seem to be taking the suggestion of a rate cut as a negative. Such a cut would occur following a period in which rates had stabilized after 11 cuts in 2001, when the economy was purportedly starting to improve, and it was widely hoped that stocks would eventually follow the trend and recover, too.

"Normally, lower rates would be seen as a positive for stocks, but in this case, it seems like the Fed is behind the curve and the Fed is supposed to be leading us out of this," Selkin added. "For months people have been talking about the disconnect between the economy and stock prices. Now it's starting to seem like that disconnect is narrowing."

The unemployment rate held steady at 5.9 percent in July, the Labor Department said, in line with economists' expectations. But the number of new jobs employers added to payrolls was beneath estimates, with only 6,000 new jobs surfacing, compared with the 60,000 expected.

A separate government report showed that personal income rose 0.6 percent in June while personal spending gained 0.5 percent, in line with forecasts. In addition, the government said June factory orders fell 2.4 percent versus the consensus forecast of a decline of 1.7 percent, a seven-month low. Orders in May rose a revised 0.6 percent.

Friday's reports cap a week of generally unfavorable economic figures, including those for consumer confidence, gross domestic product and manufacturing.

"This is the fourth day in a row where there's been disappointing economic news, and the market is reacting to that. People are also doing a little consolidating before the weekend," said Tim Heekin, head of stock trading at Thomas Weisel Partners.

In corporate news, Dow component and entertainment conglomerate Walt Disney (DIS: down $1.52 to $15.31, Research, Estimates) reported a fiscal third-quarter profit late Thursday of 17 cents per share, in line with estimates but less than what it earned in the same period a year earlier. For the current quarter, the company warned that per-share results will be lower than the 13 cents earned in the year-earlier period, also below current estimates.

Following the news, the company was hit by a slew of brokerage downgrades and word from Standard & Poor's that it may cut its debt rating, all of which combined to push the stock to an 8-year low.

Shares of Dow component and diversified conglomerate General Electric (GE: down $1.90 to $29.50, Research, Estimates) fell after the company's Industrial Systems unit said it would buy, for an undisclosed sum, a subsidiary of defense contractor TRW that specializes in pressure-sensing technology.

Energy companies traded sharply lower on the New York Stock Exchange, with Williams Cos. (WMB: down $0.40 to $3.40, Research, Estimates) falling after a Thursday runup on a cash infusion and Dynegy (DYN: down $0.63 to $2.12, Research, Estimates) down amid a Wall Street Journal report saying that the company is trying to negotiate a settlement of a Securities and Exchange Commission investigation into its accounting.

In addition, financially troubled United Airlines parent UAL (UAL: down $1.07 to $4.15, Research, Estimates) was sharply lower after reports surfaced that the company has hired bankruptcy lawyers and may be considering filing for bankruptcy.

Semiconductors were the Nasdaq's biggest problem. National Semiconductor (NSM: down $0.25 to $16.88, Research, Estimates), which makes chips for cell phones and other electronic devices, warned that weak personal computer spending will hurt its fiscal first-quarter revenue, yielding results that are flat with the fourth quarter, which would be below estimates.

The stock knocked fellow chipmakers Intel (INTC: down $0.85 to $16.71, Research, Estimates) and Applied Materials (AMAT: down $0.32 to $13.70, Research, Estimates) lower, pushing the Philadelphia Semiconductor index, or the Soxx, to a new 52-week low.

Entertainment conglomerate AOL Time Warner (AOL: down $0.71 to $10.30, Research, Estimates), CNN/Money's parent, was under pressure after the Wall Street Journal and Washington Post reported that federal investigators are now looking into the accounting practices of the company's America Online division concerning its relationship with software firm PurchasePro.com (PPRO: down $0.01 to $0.32, Research, Estimates).

Cisco Systems (CSCO: down $0.21 to $11.89, Research, Estimates), the No. 1 maker of gear that directs Internet traffic, fell sharply as it broke through a key technical support level. The company is due to report quarterly results on Tuesday.

European markets closed mixed, while Asian-Pacific stocks finished mostly lower Friday. The dollar weakened modestly versus the yen and euro.

Light crude oil futures gained 37 cents to $26.84 a barrel in U.S. trading. Gold was also higher.

Market breadth was negative. On the New York Stock Exchange, decliners topped advancers by more than 12-to-5 as 1.53 billion shares changed hands. On the Nasdaq, losers beat winners by more than 11-to-5 as 1.40 billion shares traded.