Wall Street falls as retail data blurs economic outlook

NEW YORK (Reuters) - Stocks slumped on Wednesday after retail sales data came in worse than expected, hurting shares in the sector including Wal-Mart Stores Inc and blurring the economic outlook.

Government data showed sales at retailers fell for a second straight month in April, after a string of more upbeat reports suggested a turning point in the economic cycle.

Retail activity is a closely followed indicator, as it accounts for roughly two-thirds of the U.S. economy. Analysts had forecast no change or even a small increase in retail sales, excluding autos.

Shares in Wal-Mart , the world's biggest retailer and a bellwether for the sector, fell 2 percent to $49.64, while department-store operator Macy's Inc dropped 6 percent to $11.62. The department-store operator still expects falling sales this year, citing the uncertain economy. The S&P retail index fell nearly 3 percent.

"Return to significant growth (in retailers) is likely to be a lengthy process. The consumer has problems, and it is going to take a while to build up the kind of enthusiasm needed for a robust recovery," said Joe Arsenio, president of Arsenio Capital Management in Larkspur, California.

"There is a sense that the market is overshot to the upside, relative to the day to day fundamentals," he added.

The Dow Jones industrial average fell 192.98 points, or 2.28 percent, to 8,276.13. The Standard & Poor's 500 Index lost 24.00 points, or 2.64 percent, to 884.35. The Nasdaq Composite Index dropped 45.44 points, or 2.65 percent, to 1,670.48.

The U.S. stock market is retreating from a two-month long run-up that saw the S&P 500 rise almost 38 percent from 12-year lows reached in early March.

Shares of big manufacturers were also hurt, with 3M Co down 4.4 percent to $56.93 and United Technologies Corp off 4.8 percent to $49.95, and among the top drags in the Dow industrials.

IPod maker Apple Inc was off 3.3 percent to $120.38 and the top drag in the Nasdaq.

On the upside, shares of drugmakers rose for a second day as analysts said investors pulled cash out of the financial and technology sectors in favor of more defensive plays.

Merck & Co Inc added 3.4 percent to $25.83, while Pfizer Inc climbed 3 percent to $15.38. A pharmaceutical sector index rose 1.1 percent.

Shares in Intel Corp edged up 0.2 percent to $15.17 after the European Commission imposed a record fine of $1.45 billion on the world's largest chipmaker for what it called antitrust violations.

Shares of Intel's main competitor Advanced Micro Devices Inc rose 1.2 percent to $4.40.

(Reporting by Rodrigo Campos; editing by Jeffrey Benkoe)