U.S. stocks stumbled on Friday as energy shares dropped along with oil prices on worries about weak demand, overshadowing fresh reassuring economic data.

A batch of reports, including consumer prices and sentiment, reinforced hopes that the recession was easing and gave the market an early lift, but it was short-lived.

Equities were unable to maintain gains in a choppy session, as investors took cues from stumbling oil prices. Chevron Corp and Exxon Mobil Corp were among the biggest drags on the Dow. U.S. crude futures fell $2.28, or 3.9 percent, to settle at $56.34 a barrel on increasing pessimism about the outlook for global energy demand. Chevron lost 2 percent to $65.88 and Exxon dropped 0.9 percent to $69.11.

JPMorgan Chase & Co , down 1.8 percent at $34.91, was another drag on the blue-chip index and contributed to the 3 percent decline in the KBW bank index <.BKX>. The KBW has doubled since early March as investors hoped banks had seen the worst of the fallout from the credit crisis.

Investors are also trying to assess the sustainability of the rally from the bear market low and how deep a correction stocks could see. The S&P 500 has risen 30.5 percent from a 12-year closing low hit two months ago, but it ended its worst week since the rally began.

It seems like the bears are starting to come back out and grab more of the headlines than they had been in the last few weeks and that's causing investors to take a second glance at their bullishness and their optimism, said John Schloegel, vice president of investment strategies for Capital Cities Asset Management in Austin, Texas.

The Dow Jones industrial average <.DJI> declined 62.68 points, or 0.75 percent, to 8,268.64. The Standard & Poor's 500 Index <.SPX> dropped 10.19 points, or 1.14 percent, to 882.88. The Nasdaq Composite Index <.IXIC> eased 9.07 points, or 0.54 percent, to 1,680.14.

The Nasdaq fell 3.4 percent for the week, breaking a nine-week winning streak. The S&P 500 lost 5 percent and the Dow shed 3.6 percent.

Options expiration also added to volatility.

Equity options and some options on stock indexes stop trading at Friday's close and expire the next day. Typically, options expiration is orderly, but some volatility may occur as players unwind positions against stock and index products.

The CBOE volatility index <.VIX>, considered to be Wall Street's fear gauge, jumped 5.6 percent.

Struggling General Motors Corp said it will drop about 1,600 U.S. dealers as it tries to cut billions of dollars in operating costs and debt before an expected bankruptcy filing at the end of May. GM's stock dropped 5.2 percent to $1.09.

The move comes on the heels of Chrysler saying it will shut 789 dealerships by early June. The automaker filed for bankruptcy protection at the end of April.

Data showed consumer prices were unchanged last month, while consumer confidence in May pushed to its highest level since Lehman Brothers' collapse last September, which sent shock waves through the financial system.

The reports, along with industrial output that declined at a slower pace, gave more signs that the recession's worst phase may be abating.

However credit card data was not so cheery, showing defaults rose in April to record highs, with Citigroup and Wells Fargo posting double-digit loss rates as the economy shed more jobs.

Shares of Citigroup fell 2 percent to $3.48 and Wells Fargo was off 3.2 percent at $24.87.

Despite recent optimism about the economic outlook, analysts said worries remain that the road to recovery will be a bumpy one.

Which fork in the road do we take? Do we go left and the economy rolls higher so the stock market continues higher? Or do we take a right and the stock market stalls because the economy doesn't snap back? Schloegel asked.

Trading was modest on the New York Stock Exchange, with about 1.48 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.11 billion shares traded, below last year's daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by 1,922 to 1,088 while on the Nasdaq, decliners beat advancers by 1,626 to 1,052.

(Additional reporting by Edward Krudy; Editing by Jan Paschal)

Investment Citigroup