NEW YORK, May 31 (Reuters) - Wall Street fell for a second straight day on Thursday as weak U.S. economic data added to caution a day before the closely watched monthly jobs report.
The debt crisis in Europe continued to weigh on sentiment, casting doubt on global growth prospects and again hit sectors tied to growth. Energy shares fell 1.8 percent alongside a drop in crude. The PHLX oil service sector index lost 3.4 percent, weighed down by a 4 percent drop in Schlumberger NV to $61.61.
A report by private payrolls processor ADP showed private employers created 133,000 jobs in May, fewer than the expected 148,000 while new claims for unemployment benefits rose by 10,000 for the fourth straight weekly increase. The data comes ahead of the May non-farm payrolls report, which is expected to show month-over-month growth in job creation.
"There's a lot of instability in the world, and along with the weak economic signals there's going to be significant volatility that I don't expect to end anytime soon," said Don Steinbrugge, managing partner of Agecroft Partners in Richmond, Virginia.
"Today's data reduces expectations for tomorrow, and if that number is weak it will definitely cause a big sell-off tomorrow."
Adding to the negative tone, Commerce Department data showed economic growth in the United States was slightly slower than initially thought as gross domestic product was revised down to a 1.9 percent annual rate from last month's 2.2 percent estimate.
In addition, the Institute for Supply Management-Chicago business barometer declined to 52.7 from 56.2 in April, its lowest level since September 2009 and below Wall Street expectations.
The CBOE Volatility index rose 4.4 percent, reaching levels not seen since December.
The Dow Jones industrial average was down 39.51 points, or 0.32 percent, at 12,380.35. The Standard & Poor's 500 Index was down 7.67 points, or 0.58 percent, at 1,305.65. The Nasdaq Composite Index was down 21.96 points, or 0.77 percent, at 2,815.40.
May has been a weak month for equities, with Europe a main catalyst for the losses. The S&P is down 6.6 percent so far this month while the Dow is down 6.3 percent and the Nasdaq has lost 7.6 percent.
European shares, which had steadied, turned negative after the U.S data. The FTSEurofirst 300 closed down 0.7 percent.
The European Central Bank increased pressure for a joint fund to guarantee bank deposits in the euro zone, saying the region needed new tools to fight bank runs as the bloc's debt crisis drives investors to flee risk.
The increasing concern over the euro zone's debt crisis coupled with a spate of tepid domestic economic data has put the benchmark S&P index on pace for its worst monthly decline since September.
U.S. equities have been closely linked to the fortunes of the euro, with the 50-day correlation between the currency and the S&P 500 at 0.92. Expectations of an Irish vote in favor of Europe's fiscal pact helped the euro recover from a near two-year low against the dollar.
Many top retailers reported stronger-than-expected sales in May, as shoppers overcame growing anxiety about the U.S. economy and the job market.
Target Corp edged 0.5 percent higher to $58.09 after posting better-than-expected May same-store sales. The Morgan Stanley retail index fell 0.2 percent.
Ciena Corp climbed 7.8 percent to $12.81 after the network equipment company posted a surprise second-quarter adjusted profit.
Joy Global Inc slumped 7.7 percent to $54.36 after the mining equipment maker said it expects order rate to moderate and revenue to remain flat for the next few quarters.
Facebook Inc shares continued to slide, dropping 3.4 percent to $27.23. The social networking giant has fallen in six of the past eight sessions.
