Stocks edged lower on Friday as investors were pulled in a tug-of-war between strong domestic data and continued concerns about Europe's debt crisis.

The U.S. economy added 200,000 jobs in December, topping forecasts, and the jobless rate fell to 8.5 percent, a near three-year low. The data followed strong employment reports on Thursday, and recent bullish readings on housing and manufacturing.

Markets have been moving pretty solidly, so there could be some profit-taking and selling on the payroll news, while (the) Hungary (downgrade) adds some uncertainty to the mix, said Randy Frederick, director of trading and derivatives for Charles Schwab in Austin, Texas.

Frederick described the day's movement as a yawn after the gains we've seen, not a selloff, which is a sign of how the payroll report was better than most people were expecting.

The Dow Jones industrial average <.DJI> was down 19.34 points, or 0.16 percent, at 12,396.36. The Standard & Poor's 500 Index <.SPX> was up 0.20 points, or 0.02 percent, at 1,281.26. The Nasdaq Composite Index <.IXIC> added 11.16 points, or 0.42 percent, at 2,681.02.

Equities have risen lately, with improved domestic data contributing to gains of more than 1 percent in the major indexes this week.

At the same time, volatility has increased as sentiment shifted between the improving U.S. economy and fears that Europe's debt crisis would spill over to the global economy.

Fitch cut Hungary's credit rating to junk, underscoring doubts about the government's willingness to change its controversial policies in return for aid to stave off a financial crisis.

The euro, which has been closely correlated with global equities, fell to a fresh 16-month low against the dollar.

For the week, the Dow is up 1.2 percent, while the S&P has risen 1.5 percent and the Nasdaq has gained 2.4 percent. Most of the gains came fromcyclical sectors tied to growth, including financials and energy.

Those were among the weakest on Friday, with Bank of America Corp off 0.5 percent to $6.29.

Goldman Sachs Group Inc fell 0.8 percent to $93.83 after JPMorgan cut its stock target and Bernstein forecast a challenging year for the investment banking giant.

The Nasdaq was helped by strength in large-cap Internet stocks. Netflix Inc gained 6.8 percent to $84.73 while Amazon.com Inc added 3.7 percent to $184.24.

Alcoa Inc fell 2 percent at $9.17 after the largest U.S. aluminum producer said it will cut global smelting capacity amid a steep drop in metal prices.

Sprint Nextel Corp rose 1.3 percent to $2.27 a day after the company's chief executive reported strong sales of iPhones in the fourth quarter.

The number of advancing and declining stocks was about equal on the New York Stock exchange, while slightly more stocks fell than rose on the Nasdaq.

(Reporting By Ryan Vlastelica; editing by Jeffrey Benkoe.)