Wall Steet tumbles on signs recovery sputtering

NEW YORK (Reuters) - Stocks fell more than 1 percent on Thursday, starting the second half of 2010 on a weak note, as disappointing economic data underscored the view the recovery is slowing.

Shares of financial companies were among top decliners on the Dow, including JPMorgan Chase , down 2.6 percent at $35.61. The S&P 500 financial index <.GSPF> slid 2.3 percent.

The losses come before the closely watched U.S. non-farm payrolls report on Friday and follow the stock market's worst quarterly performance since late 2008.

The Institute for Supply Management's barometer of U.S. manufacturing activity fell to its lowest level since December, while pending home sales dropped a record 30 percent in May.

"People are worried economic growth is going to be a lot slower than people thought earlier this year," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois. "The market is reassessing how the world economy is doing."

The Dow Jones industrial average <.DJI> was down 120.24 points, or 1.23 percent, at 9,653.78. The Standard & Poor's 500 Index <.SPX> was down 14.20 points, or 1.38 percent, at 1,016.51. The Nasdaq Composite Index <.IXIC> was down 29.37 points, or 1.39 percent, at 2,079.87.

Other data showed unemployment claims rose unexpectedly last week, heightening fears a labor market recovery was stalling.

Earlier this week, reports showed consumer confidence dropped in June after rising for three month and the private sector saw small job gains in June.

In the second quarter, which ended Wednesday, stocks suffered their worst losses since the market meltdown triggered by the collapse of Lehman Brothers Holdings Corp.

The S&P 500 on Wednesday fell below the key 1,040 level held since February, falling from what chartists described as a very bearish "head and shoulders" trend reversal pattern, pointing to a major retreat in coming months.

Among other financials shares, Citigroup Inc fell 2 percent to $3.69 after an early rally as the government sold 1.1 billion Citi shares to complete the second tranche of a plan to unload its stake in the big bank.

(Additional reporting by Angela Moon; Editing by Kenneth Barry)

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