NEW YORK -- U.S. stocks rose during the second quarter, but ended June with losses as investors started to come to terms with the potential slowdown in the Federal Reserve's monetary stimulus program.
For the second quarter, the Dow Jones industrial average rose 2.3 percent, the Standard & Poor's 500 index gained 2.4 percent and the Nasdaq composite climbed 4.2 percent.
On Friday, the Dow and the S&P 500 ended lower, while the Nasdaq eked out a small gain.
The S&P 500 ended Friday down 6.92 points, or 0.4 percent, at 1,606.28, leaving it up 0.9 percent for the week and down 1.5 percent in June.
The Dow dropped 114.89 points, or 0.8 percent, Friday to end at 14,909.60, leaving it up 0.7 percent for the week and down 1.4 percent in June.
International Business Machines Corp. performed worst among blue chips Friday, sliding 2.3 percent. Stifel Nicolaus said rival Accenture PLC's disappointing quarterly report late Thursday was negative for IBM.
The Nasdaq composite rose 1.38 points, or 0.04 percent, to end at 3,403.25 Friday, leaving it up 1.4 percent for
the week and down 1.5 percent in June.
In recent weeks, investors have been preoccupied with when the Fed may start pulling back monetary stimulus as the economy improves further.
Early Friday, Federal Reserve Gov. Jeremy Stein suggested the central bank's first tapering move could come in September, although he only used the month as a hypothetical start date in a speech to the Council on Foreign Relations.
Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, Va., said there's likely to be more market volatility over the outlook for monetary policy in coming months, but these moves shouldn't interfere with a modest economic recovery.
John Williams, president of the San Francisco Fed, said it's better to "wait a bit" before tapering asset purchases.
Their comments follow relatively soothing Fed speeches on Thursday in which three officials chastised markets for overreacting to the central bank's statement last week. That news on Thursday helped U.S. stocks achieve their third straight up session.
The Fed's Stein spooked investors a little, but his comment about September was hypothetical, said Mike Ryan, a chief investment strategist at UBS for the bank's Wealth Management Americas business. UBS thinks it's a close call as to whether the tapering in asset purchases could start with the Fed's September meeting or its December meeting, he said.
"Market participants got caught up again in this reference to the September meeting," Ryan told MarketWatch. "This week was a more sober reflection on what the Fed can or cannot do," he added. Ryan said the stock market's drop last week was a "knee-jerk reaction."
"We are at a policy inflection point," he added, but he stressed that the central bank's plan to wind down its accommodative policies is actually good news: "That was somehow lost in the shuffle here."
Other strategists also see a reduction in fears over Fed policy.
"I think the initial panic following (Fed Chairman) Ben Bernanke's comments last week has finally subsided," said Craig Erlam, market analyst at Alpari U.K., in emailed comments. "Investor sentiment is still very much linked to the perceived longevity of the Fed's asset purchases though, as seen by the reaction to the GDP figure on Wednesday when the downward revision prompted a rally in the equity markets."
Investors on Friday also took in a June reading for the Chicago purchasing managers' index, which was a lower-than-expected 51.6, as well as a better-than-anticipated University of Michigan/Thomson Reuters consumer sentiment figure. The final June sentiment number was 84.1, beating forecasts for 83 but down from May's final reading of 84.5.
"The balance of the economic data is still constructive," UBS's Ryan said. While Chicago PMI missed expectations, he noted that a Milwaukee manufacturing indicator out Friday showed a sharp move up.
UBS's Ryan said stocks performed "better than most people were expecting" in the first half of this year, as the economy healed and initial anxieties about the fiscal cliff and corporate earnings faded.
"The pace in the second quarter is probably closer to the pace that you'll get for the balance of the year," Ryan said.
His team sees the S&P 500 around 1,725 or 1,730 by year's end.