By Ryan Vlastelica

NEW YORK, May 28 (Reuters) - U.S. stocks fell 1 percent on Friday, extending earlier losses after Fitch Ratings downgraded Spain's credit rating by one notch, bringing concerns about euro-zone debt issues back into focus in a volatile market.

Fitch said that the country's economic recovery will be "more muted" than the government forecast due to its austerity measures.

Banco Santander SA (STD.N) fell 1.6 percent to $10.26.

"This should exacerbate the tremendous volatility we've seen in global stocks as the world wrestles with the idea of a debt-based collapse," said Chip Hanlon, president of Delta Global Advisors in Huntington Beach, California.

"Adding to this is the fact that no one wants to be long over a holiday weekend."

Stocks had already been in negative territory after data showed consumer spending was unexpectedly flat last month and growth of U.S. Midwest business activity slowed more than expected.

The Commerce Department said April was the first month since September that consumer spending did not increase, but the largest gain in real disposable income in nearly a year gave hope that spending will resume in coming months.

A separate report showed business activity in the country's Midwest grew less than expected in May after scaling a five-year high in April. An employment gauge in the Institute for Supply Management-Chicago's survey slipped.

The Dow Jones industrial average .DJI was down 104.07 points, or 1.01 percent, at 10,154.92. The Standard & Poor's 500 Index .SPX was down 10.76 points, or 0.98 percent, at 1,092.30. The Nasdaq Composite Index .IXIC was down 22.90 points, or 1.01 percent, at 2,254.78.

Investors jumped on the chance to book gains heading into a long holiday weekend and after Wall Street's rally in the previous session. May is on track to be the worst month for stocks since February 2009 after hitting an 18-month high in late April as investors fretted over a debt crisis in Europe and its implications for global growth.

Energy shares ranked among the biggest losers on Friday, a day after the S&P energy index .GSPE scored its largest gain in 14 months. At midday, the S&P energy index was down 1.9 percent. Halliburton (HAL.N) dropped 7.6 percent to $24.93 and Schlumberger (SLB.N) fell 6.6 percent to $55.82.

The U.S.-listed shares of BP Plc (BP.N) fell 5.6 percent to $42.82 after the company's chief executive officer said some progress had been made in its bid to plug the leaking Gulf of Mexico oil well, though it could still take 48 hours to conclude whether it has been fully successful.

In spite of the market's accelerated slide, there were some pockets of strength in tech and retail.

Apple Inc (AAPL.O) rose 0.8 percent at $255.37 after Asian and European customers mobbed stores as the iPad tablet computer debuted outside the United States, and after Bank of America-Merrill Lynch raised its price target on the stock by $25 from $325.

J Crew Group Inc (JCG.N) gained 3.9 percent to $45.57 a day after the apparel company posted better-than-expected earnings.

Elsewhere on the economic front, the Thomson Reuters/University of Michigan Surveys of Consumers showed consumer sentiment rose a bit in May from April but was roughly unchanged from levels since February, while the one-year inflation expectations index also climbed to its highest since October 2008.

U.S. markets will be closed on Monday for the Memorial Day holiday.