Stephen J. Carl, head equity trader at the Williams Capital Group, said the latest economic reports suggested that �the economy is walking out of steam.�
News that Moody�s cut Greece�s credit standing again because of debt restructuring concerns also contributed to the drop.
All 30 stocks in the Dow Jones industrial average fell. The index closed down 279.65 points, or four.22 percent, at 12,290.14. The Standard & Poor�s 500-stock index was down 30.65 points, or four.28 percent, at one,314.55. Both registered the worst percentage declines since August 11, 2010.
The Nasdaq composite index fell 66.11 points, or four.33 percent, to four,769.19.
ADP Employer Services, the payroll processing firm, said Wednesday that private employers added 38,000 jobs in May, the smallest increase since September and well below market expectations.
On Wall Street, financials, materials and industrials all fell over five percent, with financial shares declining by five.48 percent. Bank of The united states was down four.26 percent at $11.24, while Wells Fargo tumbled five percent to $26.94.
�We had this accumulation of information pointing to slower economic growth,� said Kathy Jones, a strategist at the Schwab Middle for Financial Research. �I think today�s ADP number probably tipped everybody over the edge who was hoping they might see a powerful employment document on Friday.�
The document came in advance of Friday�s every month employment document for May by the Labor Department. The nonfarm payroll employment numbers are keenly anticipated every month by investors to evaluate the state of wages, salaries, and ultimately consumer spending.
Economists said that the ADP survey might have been affected by extreme storms in lots of parts of the country last month, while automobile manufacturers have temporarily laid off workers in response to a disruption in supply chains. Analysts at Capital Economics said in a research note that the dip also reflected a slowdown in the growth in the service sector.
Economists at Goldman Sachs revised their estimate of May nonfarm payrolls to 100,000 from 150,000 after the ADP document.
�While the ADP document has a mixed track record in forecasting payroll growth, our research indicates it ought to get some weight,� they said in a research note. �Moreover, the weakness in the ADP document follows a streak of weaker-than-expected news on both the labor market and activity as whole.�
The slower growth in employment along with fewer new orders were factors in the lower measure of manufacturing last month. In its survey of 18 industries, the Institute for Supply Management said its index fell to a 19-month low of 53.5 last month from 60.4 the earlier month. Analysts surveyed by Bloomberg had estimated that the index would decline to 57.1 points.
�Pressures from rising commodity costs, and supply-chain disruptions from Japan�s natural catastrophe, and extreme weather domestically, have combined to slow manufacturing�s momentum,� said Nigel Gault, IHS Global Insight�s chief United States economist.
�This is worrying since manufacturing has been the economy�s shining star,� they added in a research note.
Also weighing on investor sentiment was a document that the steady recovery in auto sales stalled in May, as consumers stayed away from new-car showrooms because of higher prices, shortages of some Japanese models, and concerns over the economy. Automakers said that sales dropped five.7 percent last month compared with the same period a year earlier. Despite the general decline, sales by Detroit�s Sizable automakers outpaced imports for the first time in over years last month.
Markets were also down in Asia on Thursday morning after the pullback in the United States.
Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan & Company, said Treasuries rose in reaction to the latest economic reports. They said the latest statistics suggested �what appears to be a significant slowdown� in the economy in the last month.
As stocks slumped, investors turned their attention to safer assets, pushing government bond prices higher. The Treasury�s 10-year note rose one 1/32, to 101 18/32. The yield fell below five percent for the first time in 2011. It eased to four.94 percent, from five.06 percent late Tuesday.
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