Stocks tumbled on Friday to close out the worst week since January as news of a criminal probe into Goldman Sachs unnerved investors already anxious about the prospects for heavy regulation from Washington.

U.S. prosecutors in New York began an investigation into the investment bank, a source told Reuters, raising the possibility of criminal charges two weeks after the Securities and Exchange Commission accused the bank of fraud.

Goldman's stock fell 9.4 percent to $145.20, and the company has lost more than $20 billion of its market value since the SEC charges were filed. The S&P financial index <.GSPF> slid 2.5 percent.

It's scary, it's taking down the whole market, said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York. We're back in the uncertainty phase and whenever there is uncertainty, it's never good.

The Dow Jones industrial average <.DJI> fell 158.71 points, or 1.42 percent, to 11,008.61. The Standard & Poor's 500 Index <.SPX> lost 20.09 points, or 1.66 percent, to 1,186.69. The Nasdaq Composite Index <.IXIC> dropped 50.73 points, or 2.02 percent, to 2,461.19.

This week's losses, which took place against a backdrop of growing concerns over the potential for sovereign debt defaults in Greece, Spain and Portugal, cut short eight weeks of gains for the Dow industrials and the Nasdaq.

For the week, the Dow fell 1.2 percent, the S&P 500 lost 2.5 percent, and the Nasdaq dropped 2.7 percent. The week was the worst since the week ending January 24.

A WINNING APRIL

But the three major U.S. stock indexes have racked up gains for the last three months.

Stocks climbed in April, with a boost from strong earnings. So far almost 80 percent of S&P 500 companies have beaten earnings estimates.

For the month of April, the Dow rose 1.4 percent, the S&P 500 gained 1.5 percent, and the Nasdaq climbed 2.6 percent.

In Friday's session, a massive oil spill in the Gulf of Mexico continued to weigh on the market as investors worried about the potential economic and regulatory impact if the disaster escalates. The White House said it will halt new U.S. offshore oil drilling until a review is conducted into the spill.

The PHLX oil services sector index <.OSX> fell 2.9 percent, with Halliburton Co off 3 percent at $30.65 and Transocean Ltd down 7.7 percent at $72.45.

CHIP MAKERS FALL ON GLUT FEARS

U.S. chip makers' shares slid after Samsung Electronics Co Ltd <005930.KS>, the world's largest maker of memory chips and flat-screen TVs, said it will substantially increase capital spending in 2010, stoking fears about excess semiconductor supply.

The semiconductor index <.SOXX> dropped 4.5 percent, dragged lower by Intel Corp , the world's top chip maker, and Micron Technology , one of the world's largest memory chip makers.

Intel fell 2.8 percent to $22.84 while Micron Technology tumbled 8.4 percent to $9.35. The stock of another chip maker, Advanced Micro Devices , lost 6.8 percent to $9.06.

Shares of MEMC Electronic Materials Inc , which provides silicon wafers to semiconductor makers, plummeted 18.6 percent to $12.97 a day after reporting worse-than-expected results. Two brokers cut their price targets on the stock and another investment firm cut its recommendation following MEMC's results.

McAfee Inc shares tumbled 12.1 percent to $34.75 a day after the security software maker said the cost of fixing a bug that shut down PCs at more than 100 large corporate customers will help push second-quarter earnings below expectations.

About 11.03 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, above last year's estimated daily average of 9.65 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of 3 to 1, while on the Nasdaq, about seven stocks fell for every two that rose.

(Editing by Jan Paschal)

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