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Retail slide sends broad stock market lower

NEW YORK — Signs that U.S. consumer demand may be weakening led to a broad sell-off in stocks Friday, setting the market on course for its third week of losses.

Retailers Gap Inc. and Aeropostale each lost more than 15 percent after cutting their profit forecasts for the year, in part because of higher costs for raw materials. Gap’s sales have been sluggish, a worrying sign for investors who are counting on shoppers to lead a recovery in consumer spending.

Gap’s results pushed down other clothing companies who have been hit hard by the rising price of cotton and shoppers who are reluctant to splurge. Polo Ralph Lauren and JC. Penny Co. each dropped 4 percent, while Urban Outfitters fell nearly 3 percent.

The Dow Jones industrial average fell 63 points, or 0.5 percent, to 12,541 in afternoon trading. The Standard & Poor’s 500 index lost 7, or 0.5 percent, to 1,337. The Nasdaq composite dropped 13, or 0.5 percent, to 2,810.

One exception to the retailer gloom was Barnes & Noble Inc. The bookseller jumped 30 percent after announcing late Thursday that Liberty Media Corp. had offered to buy the company for $1 billion in cash.

Stocks have been moving up and down within a relatively small range since a May 4 plunge triggered by a sharp drop in oil prices. The Dow fell more than 200 points in two days. After several weeks of waffling, the index is trading slightly above where it was after that two-day fall.

May is traditionally a weak month for the stock market. Traders have little to base buying and selling decisions on with corporate earnings season officially over and economic news scarce. Trading has been relatively light.

A stronger U.S. dollar has also hurt stocks. The dollar rose against the euro Friday after the Fitch ratings agency downgraded Greece’s debt three notches further into junk status, escalating worries about the European debt crisis.

In recent months, markets have fallen when the dollar rises against the euro because the stronger U.S. currency has signaled that European countries are still struggling to get their debt under control.

“A stronger dollar and a stronger U.S. market can coincide, but not when the U.S. economic data are weak,” said Quincy Krosby, chief market strategist for Prudential Financial. “This has been a stronger dollar that has come because of another currency weakening, not a stronger U.S. economy.”

Concerns about the strength of the economy pushed government bond prices higher as investors sought out safer assets. The yield on the benchmark 10-year Treasury note fell to 3.15 percent from 3.18 percent late Thursday. Bond yields fall when their prices rise.

There were two notable exceptions to the downward trend. Software company Inc. rose 8 percent, the most of any stock in the S&P 500, after its first-quarter profit beat expectations. Social networking and job search site LinkedIn added to Thursday’s gains, when it more than doubled in its stock market debut. The company rose 2 percent.