NEW YORK (CNNMoney.com) - Stocks sank for the second straight session Friday as inflationary concerns weighed heavily on investors, with the Dow industrials down more than 260 points over the two-day drubbing.

The Dow Jones industrial average (down 119.74 to 11,380.99, Charts) and the broader Standard & Poor's 500 (down 14.68 to 1,291.24, Charts) index both fell about 1 percent. The tech-heavy Nasdaq (down 28.92 to 2,243.78, Charts) composite sank about 1.3 percent.

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All three major gauges were down for the week. The Dow lost 1.7 percent, the S&P fell around 2.6 percent and the Nasdaq was down 4.2 percent.

"There was a real nosebleed in the market yesterday (Thursday) and it's somewhat of a follow through on yesterday's selling," Alfred Goldman, chief market strategist at A.G. Edwards, said.

After charging toward an new all-time high earlier in the week, the blue-chip Dow index tumbled about 140 points Thursday as a spike in gold and oil sparked selling in the stock market.

Two economic reports released Friday kept investors on edge about inflation.

The University of Michigan's preliminary index of U.S. consumer sentiment for May fell to a seven-month low as high gas prices took a toll on consumers. (Full story.)

Consumer confidence and consumer spending are only loosely tied, according to Nariman Behravesh, chief economist for research firm Global Insight.

But the big drop in the Michigan reading, and Thursday's weaker-than-expected retail sales numbers, mean "consumers may finally be running out of steam," he wrote in a research report.

Consumer spending fuels more than two-thirds of the nation's economy.

The Commerce Department said the U.S. trade gap unexpectedly narrowed in March, but import prices rose more than expected.

Investors also focused on the dollar, which fell against other currencies. The dollar has been trading around one-year lows against the euro and an eight-month low versus the yen.

Selling was broad-based, with 26 of 30 Dow stocks falling.

Economically sensitive issues such as Caterpillar (down $1.81 to $77.81, Research) and Alcoa (down $1.21 to $34.81, Research) were among the biggest decliners.

But shares of Dow component Microsoft (down $0.05 to $23.17, Research) turned higher in extended trade after the software giant agreed to extend one of the key provisions of its landmark 2002 antitrust settlement with the government.

Chip shares were mostly weaker, with the Philadelphia Semiconductor Index slipping.

But standouts in the sector included Analog Devices (up $1.35 to $36.03, Research), which gained more than 4 percent after it said its profit and revenue rose in the second quarter.

Advanced Micro Devices (up $0.17 to $31.66, Research) also edged higher after Matrix Research upgraded the stock to "buy" from "sell."

Imclone (up $3.42 to $41.69, Research) gained nearly 10 percent after a news report said four suitors may be considering a purchase of the biotechnology company.

Expedia (down $5.15 to $14.51, Research) tumbled 26 percent a day after it said its first-quarter net income fell 51 percent. Google (down $12.87 to $374.13, Research) also lost about 3 percent on the Nasdaq.

U.S. light crude oil for June delivery fell $1.28 to $72.04 a barrel on the New York Mercantile Exchange, dragging on oil shares.

Exxon Mobil (down $1.22 to $62.24, Research) lost nearly 2 percent, while the Philadelphia Oil Service Sector Index tumbled 3.1 percent.

COMEX gold fell $9.70 to $711.80 an ounce but remains near a 25-year high. The streetTRACKS Gold (up $0.09 to $71.12, Research) ETF and iShares COMEX Gold Trust (down $0.05 to $71.22, Research) edged lower.

Treasury prices fell, lifting the yield on the benchmark 10-year note to 5.18 percent, up from 5.15 percent Thursday. Treasury prices and yields move in opposite directions.

Market breadth was negative. On the New York Stock Exchange, decliners topped advancers by a margin of four to one on volume of 1.8 billion shares. On the Nasdaq, losers beat winners by three to one as 2.2 billion shares changed hands.

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