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Stocks Close Down 2% on Weak Economic Data

Stocks in this article: ^DJI ^GSPC ^IXIC

NEW YORK ( TheStreet) -- Stocks lost more than 2% Wednesday as disappointing economic data and a downgrade to Greece triggered widespread fears about the recovery.

The Dow Jones Industrial Average finished the day down by 279.6 points, or 2.2%, at 12,290. The S&P 500 ended lower by 30.6 points, or 2.2%, at 1314, and the Nasdaq was off by 66.1 points, or 2.3%, at 2769.

Moody's downgraded Greece's sovereign debt rating to Caa1 from B1 with a negative outlook.

Capital goods conglomerates and financial stocks showed the steepest losses with Bank of America (BAC), Caterpillar (CAT), Alcoa (AA) and United Technologies (UTX), among the Dow's biggest laggards.

Coca-Cola (KO) was the only Dow component that managed to close the day in positive territory.

A string of weak economic data in May has compounded fears that the economy is once again stumbling. The Institute for Supply Management's manufacturing index fell to a reading of 53.5 in May , which was well below the level of 57.6 that economists had been expecting. May's level compares to April's reading of 60.4.

The disappointing reading came after discouraging news from the labor market. In the first of three employment reports scheduled for release this week, Automatic Data Processing said companies added 38,000 jobs in May, which was much weaker than the job growth of 170,000 that economists had been expecting , according to May's level compares to growth of 177,000 jobs in April. Economists have begun to lower their estimates for the nonfarm payrolls report on Friday.

Companies appear to be cutting back their hiring plans in reaction to rising gas prices and falling consumer confidence, with the outlook for the economy in the second half absent monetary and fiscal stimuli also uncertain.

"Private sector payroll growth slowed so much in May, which strengthens the argument that the slowdown story will continue," said Chris Hobart, president and founder of Hobart Financial Group. "This could potentially be a reflection that the business world is a little worried about the end of QE2. Businesses might be pulling back a little bit ahead of that."

"Industry is scared to hire right now because there is too many fractures in the economy. This just serves as a reconfirmation to the investor that we do have continuing problems," he said.

Construction spending unexpectedly rose by 0.4% in April, although March's originally reported growth of 1.4% was downwardly revised to an uptick of 0.1%. Economists had been expecting a dip of 0.5% in April, according to

Manufacturing activity in China fell to a reading of 52 in May from April's level of 52.9 . A reading above 50 indicates expansion.

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