* JP Morgan, Wells Fargo shares fall after results
* Retail sales unexpectedly drop
* Investors lock in gains after record highs
* Indexes down: Dow 0.4 pct, S&P 0.7 pct, Nasdaq 0.8 pct
By Angela Moon
NEW YORK, April 12 (Reuters) - U.S. stocks fell on Friday, pulling back from record levels set a day earlier, after retail sales unexpectedly dropped last month and results from major banks failed to impress investors.
Material and energy stocks were also pressured as oil prices sank to an eight-month low as the outlook for global oil demand growth dimmed.
But the decline still put the S&P 500 up about 1.9 percent for the week, and the Dow up 1.7 percent and Nasdaq up 2.2 percent.
"It's not surprising to see profit-taking here going into the weekend, especially after the run we had this week," said JJ Kinahan, chief derivatives strategist at TD Ameritrade in Chicago.
"With the S&P 500 flirting at 1,600 level, it would be very difficult for companies to blow away the market with earnings. The cautious outlook, that we are going to soon see a selloff, is well reflected in the jump in VIX."
The CBOE volatility index VIX, Wall Street's so-called fear gauge, rose 6.6 percent to 13.05. For the year, the Dow has gained more than 13 percent and the broader S&P is up over 11 percent.
JP Morgan Chase and Wells Fargo were the biggest companies to report so far, as earnings season got underway. Shares of both fell and the financial sector lost 0.8 percent.
Among commodity related stocks, Alcoa Inc was down 1.4 percent at $8.20 and Chevron Corp fell 1.2 percent to $119.51.
The Dow Jones industrial average was down 55.60 points, or 0.37 percent, at 14,809.54. The Standard & Poor's 500 Index was down 11.58 points, or 0.73 percent, at 1,581.79. The Nasdaq Composite Index was down 25.95 points, or 0.79 percent, at 3,274.20.
Data showed retail sales fell 0.4 percent in March, while February's strong gain was revised down slightly. Consumer spending plays a key role in the U.S. economy, accounting for two-thirds of activity.
Another report showed consumer sentiment fell to a nine-month low in early April amid gloom about the long-term health prospects for the U.S. economy.
Investors have been rattled by indications economic growth could be softening, particularly after last week's disappointing jobs number, though that has not derailed the market rally so far.
The advance in equities in recent months was partly buoyed by the Federal Reserve's economic stimulus efforts, and analysts are viewing the first-quarter earnings season as a test for whether those gains are justified by corporate performance.
JP Morgan reported higher first-quarter profit, though revenue declined; its stock was off 0.5 percent to $49.06.
Wells Fargo's profit was better-than-expected but it made fewer home loans. Its shares were down 2.1 percent at $36.74.
Earnings for S&P 500 companies are expected to grow at a modest 1.2 percent in the first quarter, down from more than 4 percent forecast in January, according to Thomson Reuters data.