U.S. stocks closed lower on Friday as JPMorgan Chase reported worse-than-expected fourth-quarter earnings while downgrades of several European countries spurred new concerns over the region's debt crisis.

Investors had expected rating agency Standard & Poor's to downgrade some European countries' credit ratings on Friday as it had put 15 countries on Creditwatch Negative in early December.

The finance minister of France had confirmed before the market close that the country's triple-A would be cut by one notch. S&P later announced to cut the country's credit rating by one notch from AAA to AA+.

Other European countries like Italy, Spain and Portugal are also on the list of possible downgrades.

The large scale credit rating downgrades worried investors as risk-aversion appetite weighed on the market.

Meanwhile, the fourth quarter earnings of JP Morgan Chase missed the market's expectations as both its revenue and profit dropped significantly. The bank's poor quarterly performance dragged the banking sectors and pressured the market.

On the economic front, the Reuter's/University of Michigan's consumer sentiment index rose to 74 in January from 69.9 in December, beating previous estimate of 71.5.

The Dow Jones industrial average lost 48.96 points, or 0.39 percent, to 12,422.06. The Standard & Poor's 500 was down 6.41 points, or 0.49 percent, to 1,289.09. The Nasdaq Composite Index dropped 14.03 points, or 0.51 percent, to 2,710.67.