Wall St plummets on weak data, led by banks

* Private payroll, manufacturing data miss estimates

* Bank stocks down on growth pessimism, Wells Faro sinks

* Wall St firms cut forecasts for U.S. non-farm payrolls

* Indexes off: Dow 1.8 pct, S&P 1.9 pct, Nasdaq 1.8 pct

By Ryan Vlastelica

NEW YORK, June 1 (Reuters) – U.S. stocks slumped more than 1 percent in their worst day in more than two months Wednesday after data that pointed to an economy running out of steam.

All ten S&P sectors were solidly lower, with 80 percent of companies falling and bank stocks were the biggest decliners. The economic reports painted dismal pictures for jobs and manufacturing, calling into question banks’ prospects. A number of hedge funds are selling the group due to growth prospects.

The S&P financial sector slumped 2.6 percent with JPMorgan Chase & Co and Bank of America Corp, Dow components among the biggest drags. JPMorgan fell 2.9 percent to $42 while Bank of America lost 3.4 percent to $11.34.

According to ADP, U.S. private employers added a scant 38,000 jobs in May, the lowest since September 2010. A number of banks cut their forecasts for Friday’s non-farm payroll report from the Labor Department.

“It has been just one negative report on the economy after another, and now everyone is downgrading their growth expectations dramatically,” said Roger Volz, director of cash equities at BGC Financial in New York.

Goldman Sachs cut its estimate, saying employers added 100,000 jobs in May versus an original estimate of 150,000. Citigroup cuts its forecast to 100,000 from 170,000.

The Dow Jones industrial average was down 231.29 points, or 1.84 percent, at 12,338.50. The Standard & Poor’s 500 Index was down 25.10 points, or 1.87 percent, at 1,320.10. The Nasdaq Composite Index was down 51.17 points, or 1.80 percent, at 2,784.13.

Wednesday’s fall came after four days of gains. That rally had some investors pointing to resilience in the market. The S&P 500’s decline below its down trend line from its May highs is likely to reignite concerns about market weakness.

“I expected that the S&P would be able to hold onto 1,331 or 1,324,” Volz said. “The fact that we keep moving deeper into a corrective mode … puts us on the sidelines for Friday.”

Manufacturing activity declined sharply in May, according to the Institute for Supply Management’s index, which suffered its biggest fall since September 2009.

Wednesday’s data is the latest in a string of discouraging reports on home sales, consumer confidence and Midwest business activity, though progress with handling Greece’s debt crisis helped buoy the market.

Automakers tumbled after reporting slightly lower car sales in May as economic weakness and high gas prices pushed consumers to delay purchases. General Motors Co lost 3.8 percent to $30.60 and Ford Motor Co sank 4.2 percent to $14.30.

On the upside, Coca-Cola Co, a Dow component, rose 0.4 percent to $67.10 after saying it may explore a possible listing in Shanghai.