Concerns that Europe's debt crisis was flaring up again added to selling pressure. Sectors taking the hardest hit were those most closely linked to growth, including materials, energy and financials.
The S&P 500 is now down 3.4 percent from this year's closing high, after falling 2.7 percent over the past two weeks.
"Everyone is looking for global growth, but the slowing in China and the rising yields in Europe are creating questions about how strong we might expect it to be," said Brad Sorensen, director of market and sector analysis at Charles Schwab in Denver. "That's leading to a correction here, with financials especially taking a hit."
The S&P financial sector index <.GSPF> fell 2.5 percent in Friday's session and lost 2.8 percent for the week. Bank of America Corp (>> Bank of America Corp) dropped 5.3 percent to $8.68. Morgan Stanley (>> Morgan Stanley) slumped 5.2 percent to $17.28.
The cost of insuring Spanish debt against default hit 500 basis points for the first time on fears about the high exposure of the country's banking sector to sovereign debt.
Data showed that China's economy expanded 8.1 percent in the first quarter, a rate that was slower than expected and the country's weakest pace in nearly three years.
The Dow Jones industrial average <.DJI> tumbled 136.99 points, or 1.05 percent, to 12,849.59 at the close. The Standard & Poor's 500 Index <.SPX> slid 17.31 points, or 1.25 percent, to 1,370.26. The Nasdaq Composite Index <.IXIC> dropped 44.22 points, or 1.45 percent, to 3,011.33.
The S&P 500 is still up 9 percent so far in 2012, but fell 2 percent over the week. The Dow lost 1.6 percent for the week and the Nasdaq dropped 2.2 percent.
This week's losses came on top of the slide in the previous week, which was cut short a day for the Good Friday holiday. In that week, the Dow dropped 1.1 percent, while the S&P 500 slipped 0.7 percent and the Nasdaq shed 0.4 percent.
For both the Dow industrials and the benchmark S&P 500, this was the worst two-week percentage drop since late November.
Weighing on the Nasdaq, Apple Inc (>> Apple Inc.) dropped 2.8 percent to $605.23.
In the previous two sessions of back-to-back gains, the S&P 500 had added 2.1 percent as immediate concerns about rising yields in Spain and Italy ebbed and on bets that the Chinese GDP data would surprise on the upside.
Banks fell in Friday's session despite earnings from JPMorgan Chase & Co (>> JPMorgan Chase & Co.) and Wells Fargo & Co (>> Wells Fargo & Company) that beat Wall Street's expectations. JPMorgan lost 3.6 percent to $43.21. Wells Fargo fell 3.5 percent to $32.84.
Google Inc (>> Google Inc) slid 4.1 percent to $624.60 a day after reporting a second straight slip in search advertising rates, though it also posted a first-quarter profit that beat expectations.
With 6 percent of the S&P 500 components having reported results, three-fourths of companies have reported profits that topped expectations.
"So far, so good with earnings, but expectations have been low, and it's far too early to tell what the season will be like as a whole," said David Kelly, chief market strategist for JPMorgan Funds in New York. "It's understandable people want to take profits right now, especially given how much we're up this year."
Materials and energy shares dropped as copper and oil prices fell after the Chinese data. The S&P materials sector index <.GSPM> shed 1.1 percent and an S&P energy sector index <.GSPE> lost 1.6 percent.
Adding to concerns, two U.S. reports on Friday sent mixed signals to the Federal Reserve about how much room there might be to bolster economic growth.
The U.S. Consumer Price Index rose modestly in March among signs that a surge in gasoline costs was ebbing, but inflation still outpaced workers' earnings and threatened to undermine spending.
The Thomson Reuters/University of Michigan survey showed U.S. consumer sentiment slipping modestly in early April as higher gasoline prices hit household budgets even as optimism about the economic outlook lifted consumers' expectations.
Almost three-fourths of stocks traded on both the New York Stock Exchange and Nasdaq closed lower. Volume was light, with about 6.07 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 7.84 billion.
(Editing by Jan Paschal)
By Ryan Vlastelica