By Wanfeng Zhou
NEW YORK (Reuters) - U.S. stocks fell on Friday and the dollar finished its worst week in almost four years against the yen as investors worried that major central banks may soon start withdrawing stimulus and after data showed a decline in U.S. consumer sentiment.
But European shares ended higher, supported by signs of merger and acquisition activity in the region. That helped boost the MSCI world index 0.1 percent on the day. The index, however, fell for a fourth straight week.
Jitters over the longevity of monetary policy around the world have roiled markets recently, and nerves were stretched further this week when the Bank of Japan decided to hold policy steady.
The concerns have fueled a selloff in global equities, emerging markets, risky bonds and commodities, which have been buoyed by central bank liquidity, while driving the safe-haven yen sharply higher.
Wall Street stocks closed their third negative week in four as investors took profits after the S&P 500 recorded its second best day of the year on Thursday. Stocks rallied more than 1 percent in the previous session on stronger U.S. economic data.
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The market is "giving back some of those gains from yesterday, which I think really caught people by surprise ... and I certainly think the economic news wasn't bullish," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
"We go through these ups and downs," he said. "I would still say this market is certainly driven by central banker thoughts and currency markets like the Japanese yen."
The Dow Jones industrial average ended down 105.90 points, or 0.70 percent, to 15,070.18. The Standard & Poor's 500 Index fell 9.63 points, or 0.59 percent, to 1,626.73. The Nasdaq Composite Index lost 21.81 points, or 0.63 percent, to 3,423.56.
Attention is shifting to a policy meeting of the Federal Reserve next week, which would shed light on when the U.S. central bank plans to scale back its monthly $85 billion bond purchase program.
"Markets are looking at next week's Fed meeting to be the big driver in the short-term," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
Fed chief Ben "Bernanke has really increased the amount of transparency in the Fed's thinking," said Forrest. "This isn't going to be a jack-in-the-box surprise Fed; it's going to be a Fed that clearly indicates what it's going to do. That's why people are looking to this meeting in particular."
U.S. data on Friday showed consumer sentiment edged off a six-year high in June while manufacturing output picked up a bit last month, suggesting the economy remained on a moderate growth path. Other data showed wholesale prices rose more than expected in May but underlying inflation pressures remained muted.
Top European stocks climbed 0.2 percent, tracking a rebound in Japanese and Asian shares.
Emerging market equities as measured by MSCI rose 1.1 percent on Friday, although they posted a fifth consecutive week of losses.
Despite climbing 2 percent on Friday, Japan's Nikkei is nursing losses of more than 15 percent since mid-May. The volatility in stocks has driven a sharp rebound in the yen.
"The yen has proved to be investors' go-to safe haven to ride out global stock market volatility," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington D.C.
"The uncertainty has prompted investors to exit recently overcrowded plays like betting on the dollar and Japan's Nikkei stock index and against the yen," he said. "With that play now in reverse, the yen has steadily been squeezed higher."
The dollar fell 1.2 percent to 94.21 yen and dropped 3.4 percent on the week, the biggest weekly loss since July 2009. The euro lost 1.4 percent to 125.70 yen. Against the dollar, it slipped 0.2 percent to $1.3347.
The benchmark 10-year U.S. Treasury note was up 4/32, the yield at 2.1331 percent as traders bet the Fed would keep interest rates near zero for a protracted period to help the economy even if the bank slows its bond buying this year.
Oil prices rose as news that the United States had authorized sending U.S. weapons to Syrian rebels sparked concerns about Middle East supplies.
Though Syria is not a global oil supplier, investors are worried that an escalating civil war could lead to unrest in oil-producing regions of the Middle East.
Brent crude rose 98 cents to settle at $105.93 a barrel, while U.S. crude gained $1.16 to settle at $97.85 a barrel, having struck a nine-month high.
Spot gold rose slightly, to $1,388 an ounce, helped by resilient demand for coins and bars and a pullback in U.S. equities. Rising geopolitical tensions in the Middle East also boosted the metal's safe-haven appeal, traders said.
(Additional reporting by Leah Schnurr, Angela Moon and Julie Haviv; Editing by Dan Grebler and Chizu Nomiyama)