Disappointment over two economic reports and worries about a criminal investigation of Goldman Sachs sent stocks falling sharply.

Investors lost some of their optimism about the economy Friday after the government’s weaker-than-expected gross domestic product report and news of a drop in consumer sentiment. Concerns surrounding financial regulation contributed to the selling, which took the Dow Jones industrial average down more than 100 points.

“The market may just be a little bit tired,” said Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Conn. “A lot of good news is priced into the market.”

Many analysts have said the stock market was poised for a pullback after it climbed steadily for nearly three months.

In the last trading session of April, the Dow is still set to post its third straight monthly gain. However it looks like it will snap an eight-week winning streak.

Friday’s pullback began after the Commerce Department said the GDP rose at a 3.2 percent annual pace in the January-March period. That was below the 3.4 percent rate economists polled by Thomson Reuters had forecast.

While the GDP was up for the third straight quarter, it was down from the fourth quarter’s 5.6 percent, a rate that was inflated by government stimulus spending and companies restocking their depleted inventories. For the economy to show healthy growth, it would have to grow at a faster pace than it did the first three months of the year. Growth would have to equal 5 percent for all of 2010 just to lower the average jobless rate for the year by 1 percentage point.

The Labor Department will release its April employment report next week. Economists predict the unemployment rate held steady at 9.7 percent.

Analysts were relatively upbeat that the first-quarter growth rate, though slow, probably was good enough to help avoid a “double-dip” recession.

“GDP was slightly lower than expectations, but shows the economic recovery is probably sustainable,” said Peter Cardillo, chief market economist at Avalon Partners Inc. in New York.

Investors were disappointed by a separate report from Reuters and the University of Michigan that showed consumer sentiment rose to 72.2 in April from a preliminary April reading of 69.5. However, it was still lower than March’s 73.6. Economists had forecast a reading of 71.

The consumer sentiment report shows the “consumer isn’t fully recovered,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

Investors want to see data that shows month-over-month improvement, Luschini added.

Financial stocks were pulled down by Goldman Sachs Group Inc., which is now facing a criminal investigation for its dealings in subprime mortgage securities. A Standard & Poor’s equity analyst downgraded Goldman Sachs’s stock to a “sell” rating Friday morning. Its shares dropped more than 9 percent.

In afternoon trading, the Dow fell 106.33, or 1 percent, to 11,060.99. The Standard & Poor’s 500 index fell 15.03, or 1.3 percent, to 1,191.75, while the Nasdaq composite index fell 37.11, or 1.5 percent, to 2,474.81.

The Chicago Purchasing Managers Index rose this month, further evidence of a recovery in the manufacturing sector. The index, which reflects economic activity in the Midwest, jumped to 63.8 in April, from 58.8 last month. Economists expected the index to rise to 60.

Investors were keeping an eye on the European debt problems. The biggest concerns are in Greece, where the country faces loan repayments in a couple of weeks. If it is unable to tap a joint European Union and International Monetary Fund bailout package before May 19, the country could default on its debt.

Analysts fear that debt problems will spread across the continent and stunt a global economic recovery.

Greece, Portugal and Spain all saw their debt ratings slashed by Standard & Poor’s earlier this week. Greece’s was cut to junk status. Lower ratings make it more expensive to borrow money, which would only add to debt burdens already facing some European nations.

European markets fell. Britain’s FTSE 100 dropped 1.2 percent, Germany’s DAX index fell 0.2 percent, and France’s CAC-40 fell 0.8 percent.

The euro rose against the dollar, but analysts remain cautious about its long-term future. Some have said that the debt problems could further drive down its value or lead to a split among the 16 countries that share the currency.

Meanwhile, Goldman Sachs is again contending with negative headlines. The big Wall Street bank — which is already facing civil fraud charges for misrepresenting details about subprime mortgage securities — is now also facing a criminal investigation.

“They’re really going after Goldman pretty hard,” said Ryan Detrick, senior technical analyst at Schaeffer’s Investment Research. “That’s got people on edge.”

The Justice Department has opened a criminal investigation against the bank over mortgage securities deals it arranged. Many blame the credit crisis on the collapse of similar securities which were traded by many banks around the world.

Detrick said that after all asset bubbles, regulators and politicians look for companies or executives to blame and Goldman is currently at the top of that list.

Goldman shares tumbled $15.31, or 9.5 percent, to $144.93. Other big banks with trading operations like Morgan Stanley and JPMorgan Chase & Co. fell more than 3 percent.

About two stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1 billion shares.

Bond prices rose as stocks dipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.67 percent from 3.73 percent late Thursday.

Gold and oil prices both rose.

The Russell 2000 index of smaller companies fell 15.92, or 2.1 percent, to 721.82.

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