NEW YORK (CNN/Money) - Disappointing earnings and forecasts from IBM and Nokia sent stocks lower Thursday, with the Nasdaq posting the steepest declines, but a positive response to Microsoft's after-hours earnings and forecast could help markets Friday.

After the close of trade, Microsoft (MSFT: down $0.83 to $26.69, Research, Estimates) reported fiscal fourth-quarter results of 23 cents per share, up from 21 cents a year earlier, but a penny shy of estimates. However, revenue came in better than expected and up from a year earlier. The company also said that fiscal year 2004 results would top estimates on a revenue and earnings-per-share basis. Shares edged up modestly after hours.

But after three days of selling, "I think tomorrow should be a fairly positive open, with the techs a little higher on Microsoft and in response to the action over the last few days," said Michael Carty, principal at New Millennium Advisors. "We've had a couple of ugly sessions and you're likely to see a little bounce off of that."

In addition, "Microsoft is the 800 pound gorilla," Carty observed, "so people are going to want to listen to them."

They'll need to if the stock market is going to manage a higher weekly close for the third week in a row. As of Thursday's close, the Dow is down almost 69 points this week, the S&P 500 is down almost 17 points, and the Nasdaq composite is down around 36 points.

So far this week, positive earnings have been largely overlooked or given a negative spin, as was the case with IBM Thursday, as investors seem to be expressing some disappointment that second-quarter results are solid, but not spectacular.

"Earnings have been fine, but they just haven't been as robust as people were hoping," said Tim Heekin, head of stock trading at Thomas Weisel Partners. "The guidance for the third and fourth quarters hasn't been that strong, and part of the rally was based on people betting that the second half of the year would be good, so with the numbers not saying that, you're seeing some selling."

Also after-the-close Thursday, software maker PeopleSoft (PSFT: up $0.01 to $17.90, Research, Estimates), which is trying to fight off Oracle's (ORCL: down $0.32 to $12.09, Research, Estimates) hostile takeover bid, reported earnings of 14 cents per share, better than expected and up from a year earlier. Shares were little changed after-hours.

Friday is the week's lightest earnings day. The most noteworthy report will come before the markets open when Ericsson (ERICY: down $0.91 to $10.79, Research, Estimates) reports. The company is forecast to have lost 27 cents per share, narrower than the 30-cent-per share loss it posted a year earlier.

The other likely market-moving event of the morning will by the preliminary July reading on consumer sentiment, due from the University of Michigan shortly after trading begins. The index is forecast to have risen to 91.0 from 89.7 in June.

The Nasdaq composite (down 49.95 to 1698.02, Charts) lost 2.9 percent, while the Standard & Poor's 500 (down 12.27 to 981.73, Charts) index lost 1.2 percent and the Dow Jones industrial average (down 43.77 to 9050.82, Charts) lost 0.5 percent.

Decliners beat advancers by more than three to one on the New York Stock Exchange and by nearly four to one on the Nasdaq. On the NYSE, volume was 1.63 billion shares, while on the Nasdaq, 1.88 billion shares traded. On the Dow, 25 out of 30 issues closed lower.

Dow stock IBM (IBM: down $3.41 to $83.33, Research, Estimates) reported earnings of 98 cents per share, in line with estimates and up from 89 cents a year ago. Big Blue also said it expects third-quarter results to meet analysts' current estimates. But investors were disappointed that IBM didn't top the forecasts or raise its projections for the quarters ahead and that most of its profit was the result of currency fluctuations rather than real growth. A number of analysts trimmed earnings estimates on the company following the news.

IBM also offered little encouragement about the prolonged draught in information technology spending. Much like Intel (INTC: down $0.38 to $24.93, Research, Estimates) and Microsoft (MSFT: down $0.83 to $26.69, Research, Estimates), what the company has to say about the corporate spending environment is key for a variety of names in the tech sector. The stock lost 3.9 percent.

Although IBM trades on the New York Stock Exchange, its depressing earnings news, released late Wednesday, hit the Nasdaq hardest, affecting many a technology bellwether.

But the damage was even greater for cell phone maker Nokia (NOK: down $3.57 to $14.38, Research, Estimates), which plunged 20 percent after it posted second-quarter earnings that were lower than a year earlier and warned that third-quarter sales would not meet estimates, due to the impact of the weak dollar and sluggish phone sales. The stock was the NYSE's most active.

Helping save the Dow from a bigger drop, Caterpillar (CAT: up $4.90 to $63.54, Research, Estimates) rallied 8.4 percent after it reported a second-quarter profit that soared past estimates and nearly doubled from a year earlier, helped by the weaker dollar and better engine and machinery volume. The company also raised its full-year revenue and earnings-per-share outlook, saying it saw signs that a rebound in machinery demand has started.

Shares of Coca-Cola (KO: up $1.85 to $44.76, Research, Estimates) added 4.3 percent after the company reported a better-than-expected quarterly profit that edged estimates due to strong sales of Vanilla Coke and other new products. Fellow Dow stock United Technologies (UTX: up $1.54 to $73.73, Research, Estimates) also gained 2.1 percent in response to its strong earnings.

(For a look at other key earnings reports released Thursday, click here.)

The morning's positive economic news did little to stem the downward flow, with investors shrugging it off and instead fretting about earnings.

The number of Americans filing new claims for unemployment last week fell to 412,000 from 439,000 the prior week, better than what economists had expected, but still above the 400,000 level that signifies a contracting labor market.

Housing starts for June rose to 1.8 million, better than the anticipated rise to 1.75 million and up from 1.73 million in May. In addition, the noon release of the Philadelphia Fed, a regional manufacturing index, showed a gain of 8.3, better than the 7 forecast and up from 4 in the previous month.

In addition, the National Bureau of Economic Research issued a report earlier in the day saying that the economy pulled out of its recession in November 2001 and is now in a recovery phase, although the group did acknowledge the economy's current troubles, particularly in the labor market.

Treasury prices fell, sending the 10-year note yield up to 3.94 percent from 3.92 percent late Wednesday, further adding to the stock market's woes. The dollar picked up against the yen, but slid versus the euro.

NYMEX light sweet crude oil futures added 31 cents to $30.72 a barrel. COMEX gold rose $1.10 to $344.30 an ounce.