U.S. stocks fell on Friday as shares of Goldman Sachs tumbled on reports of a federal probe into the Wall Street powerhouse and after first-quarter gross domestic product came in weaker than expected.

The S&P financial index lost 1 percent, with Goldman sliding 8.4 percent at $146.74. U.S. prosecutors in New York have begun an investigation, a source said, raising the possibility of criminal charges less than two weeks after securities regulators accused Goldman of civil fraud. Bank of America-Merrill Lynch downgraded the stock to neutral.

The market is reacting to further news to come, especially in regard to criminal indictments, said J. Michael Barron, chief executive of Revolution Capital in Glenmoore, Pennsylvania.

Gross domestic product expanded at a 3.2 percent rate in the quarter, the Commerce Department said in its first estimate, below the 3.4 percent forecast of analysts.

GDP was a disappointment, though there was some indication consumer spending was stronger, Barron said.

The Dow Jones industrial average <.DJI> lost 16.85 points, or 0.15 percent, to 11,150.47. The Standard & Poor's 500 Index <.SPX> fell 4.68 points, or 0.39 percent, to 1,202.10. The Nasdaq Composite Index <.IXIC> dropped 13.80 points, or 0.55 percent, to 2,498.12.

Chipmaker shares fell, with MEMC Electronic Materials Inc sliding more than 18 percent to $13.01. The wafer manufacturer posted worse-than-expected results and two brokers issued downgrades. The stock was the biggest weight on the PHLX semisconductor index <.SOXX>, which fell 2.7 percent.

UAL Corp gained 4.6 percent to $22.45, while Continental Airlines Inc added 2.4 percent to $23.25. UAL's United Airlines and Continental have agreed to a deal to create the world's largest carrier, a source said.

The PHLX oil services sector index <.OSX> fell 2.5 percent, with Halliburton Co off 3.1 percent to $30.63 and Transocean Ltd dropping 6.3 percent to $73.56. The White House said it will halt new U.S. offshore oil drilling until a review is conducted into a massive oil spill in the Gulf of Mexico.

Losses in the Dow were limited after Chevron Corp rose 0.5 pct to $82.75 as it reported a sharp increase in quarterly profit.

A multibillion-euro aid package for debt-laden Greece will be hammered out within days and could keep a sovereign debt crisis from spreading, a top European Commission official said. Fears over a debt default have weighed on equities in recent weeks.

In the latest economic data, business activity in the U.S. Midwest expanded more than expected in April to its highest level since April 2005.

Separately, U.S. consumer sentiment fell in April from the month before, but was better than expectations as consumers saw the economic recovery well under way, albeit slowly.

(Editing by Jeffrey Benkoe)

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