Technology shares led Wall Street's drop on Friday after National Semiconductor's disappointing results, but a rise in defensive sectors like healthcare limited losses in the Dow and S&P 500.

The energy and materials sectors also fell, with a stronger dollar and profit-taking supporting declines in oil and commodity prices, which have recently jumped.

Among the tech bellwethers, iPod and iPhone maker Apple Inc was down 2.7 percent at $136.16 and BlackBerry maker Research in Motion was down 2.9 percent at $82.96. They were the top two drags on the Nasdaq.

Chipmaker National Semiconductor Corp reported a quarterly loss late Thursday, but offered a sales forecast that beat expectations. Its shares sank 7.5 percent to $13.40 on the New York Stock Exchange and weighed on the PHLX semiconductor index <.SOXX>, which was down nearly 3 percent.

We've got a bit of a sell-off in technology across the board. That has been the driving force in the market so far, said Tim Smalls, head of U.S. stock trading at Execution LLC in Greenwich, Connecticut.

Economic activity is picking up a little bit, but we're nowhere close to being out of the woods. If we're getting out of the woods based on better-than-expected economic reports, it is going to take a long time.

The Reuters/University of Michigan Surveys of Consumers showed consumers' mood in June stood at its highest in nine months, but worries about inflation and labor market uncertainty persisted.

The Dow Jones industrial average <.DJI> shed 2.20 points, or 0.03 percent, to 8,768.72. The Standard & Poor's 500 Index <.SPX> fell 3.19 points, or 0.34 percent, to 941.70. The Nasdaq Composite Index <.IXIC> dropped 18.98 points, or 1.02 percent, to 1,843.39.

In the materials sector, AK Steel fell 7.7 percent to $19.51, hurt by Goldman Sachs' downgrade of its stock. Shares of U.S. Steel tumbled 6 percent to $39.31.

But the healthcare sector rose as investors rotated money into defensive plays. Drugmaker Merck was up 3.1 percent at $27.00, while Pfizer Inc

rose 2.1 percent to $14.94. Defensive plays are stocks of companies that tend to weather the recession better than others because their products -- such as food or toothpaste or drugs -- are things that people buy, even if they cut spending, in leaner times.

Shortly before midday the New York Stock Exchange was hit by a technical glitch that temporarily halted trading in about 240 stocks, including blue-chips General Electric , Exxon Mobil and Bank of America . Server connectivity was restored around 12:10 p.m.

(Editing by Jan Paschal)

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