U.S stocks drop on June rebalance, Fed comments; Dow dips 0.76%

U.S. stocks ended largely lower Friday due to a June rebalancing of the Russell Index and to mixed signals from Federal Reserve officials suggested that stimulus programs may stay in place for now but end later this year.

At the close of U.S. trading, the Dow Jones Industrial Average finished down 0.76%, the S&P 500 index ended down 0.43%, while the Nasdaq Composite index rose 0.04%.

Each June, the Russell Index rebalances its list of investible stocks, which tends to fuel volatility, especially on the last trading day of the quarter.

Earlier Friday, Federal Reserve Governor Jeremy Stein suggested that asset purchases may begin to taper in September provided the economy improves, which boosted stocks earlier.

"The best approach is for the Committee to be clear that in making a decision in, say, September, it will give primary weight to the large stock of news that has accumulated since the inception of the program and will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting — as salient as these releases may appear to be to market participants," Stein said, according to prepared remarks in a speech he gave earlier.

Separately, San Francisco Federal Reserve President and noted inflation dove John Williams said that it was still too early to scale back stimulus tools yet, though stocks rose earlier on the notion that liquidity injections from asset purchases will keep stocks high, and by the time the Fed begins to scale back, better economic fundamentals will support equities.

However, Federal Reserve Bank of Richmond President Jeffrey Lacker said markets will experience more volatility while figuring out what the Fed will do, which added to the day's  declines.

Elsewhere, the Thomson Reuters/University of Michigan consumer sentiment index rose to 84.1 for a final reading in June, up from a 82.7 reading the previous month and also above expectations for a 82.8 reading. 

The upbeat numbers came in wake of a report that revealed that the Chicago purchasing managers' index fell to 51.6 this month from 58.7 in May, exceeding expectations for a decline to 56.0.

Any reading over 50 signifies expansion, which fueled demand for stocks during the volatile session. 

Leading Dow Jones Industrial Average performers included Home Depot, up 1.13%, Intel, up 0.87%, and Hewlett-Packard, up 0.16%.

The Dow Jones Industrial Average's worst performers included IBM, down 2.35%, DuPont, down 2.00%, and Merck, down 1.65%.

European indices, meanwhile, finished lower.

After the close of European trade, the EURO STOXX 50 fell 0.66%, France's CAC 40 fell 0.62%, while Germany's DAX 30 finished down 0.39%. Meanwhile, in the U.K. the FTSE 100 finished down 0.45%.