Financial stocks fell on Friday on slipping consumer sentiment, led by losses at large regional banks Keycorp and Regions which were hurt by downgrades.

The Financial Select Sector SPDR, an exchange traded fund which follows financial stocks on the S&P 500 fell 0.11 points, or 0.4 percent to 26.39. The S&P 500 index rose 1.78 points, or 0.1 percent to 1,425.35.

The Reuters/University of Michigan preliminary index of consumer sentiment fell to 59.5 from 62.6 in April. It was the lowest the index has been in 28 years.

A pair of large regional banks had the biggest financial sector losses on Friday after a downgrade due to a bigger than expected fall in housing prices in recent months. KeyCorp fell 5.5 percent to $23.72 and Regions Financial dropped 5.4 percent to $20.17 after Merrill Lynch cut its rating for the stocks to sell from neutral.

Citigroup, the largest U.S. bank, fell 2.6 percent to $23.12. On Friday, a trial began in New Jersey began where Citigroup is being accused by Parmalat SpA of helping conceal corrupt activity by insiders at Parmalat. It is seeking $2.2 billion in damages. The bank also said it was considering selling its banking business in Germany, which could sell from about $7.8 billion according to an analyst's estimate.

Other significant decliners in the sector included: Lehman Bros, down 2.5 percent; Merrill Lynch, dropping 2.2 percent; Fannie Mae, sliding 1.1 percent; and Morgan Stanley, which slipped 1 percent.

Michigan Merrill Lynch Investment Citigroup