NEW YORK—A quiet start on Wall Street quickly turned into a rout Thursday as the bad news piled up.

Commodity prices slumped in early trading after a report said manufacturing in China fell this month. Then, around 10 a.m., the Philadelphia branch of the Federal Reserve reported a sharp contraction in manufacturing in the Northeast. The report, the worst since last August, helped knock the Dow Jones industrial average down about 40 points.

By the afternoon, the Dow had dropped 199 points to 12,624, a loss of 1.6 percent. Alcoa fell the most of the 30 stocks in the average, 3.6 percent. Alcoa lost 32 cents to $8.60, leading a broad fall in commodities and materials companies. Signs of weakness in China are especially troubling since that country's economy has helped drive global economic growth over the past four years.

"The news has been horrible out there," said Uri Landesman, president of Platinum Partners. "The U.S. economy is slowing down. And China's growth is definitely under question."

The Standard & Poor's 500 index lost 22 points to 1,333, a decline of 1.7 percent. The Nasdaq composite fell 55 points, 1.9 percent, to 2,875. All three major indexes lost their gains for the week.

The batch of weak economic reports led a Goldman Sachs analyst to tell clients to place bets against the stock market. The analyst said the S&P 500 index may reach 1,285.

The late-morning blows to investor confidence were just the latest reasons for people to pull money of out stocks. Earlier Thursday, the Labor Department reported that the four-week average of applications for unemployment benefits, a figure closely watched by economists, jumped to the highest level since September. The National Association of Realtors also reported that sales of previously occupied homes dropped 1.5 percent in May.

All this a day after the Federal Reserve slashed its estimates for U.S. economic growth and said it would extend a bond-buying program through the end of the year, disappointing investors who had hoped for bolder steps from the central bank to get the economy going again.

"What's worse is that things are getting weaker without the Fed coming in," said Rex Macey, chief investment officer at Wilmington Trust Investment Advisors. "We had a run-up in the market this month because people had been expecting Fed action. Today, the market is giving it back."

A manufacturing survey for countries that use the European currency also showed a contraction. The reports out of China and Europe helped sink commodity prices. Copper and platinum fell 2 percent. The price of oil dipped below $80 for the first time since October.

Benchmark U.S. crude, on a steady slide since May, hit a low of $79.82 per barrel.

The Philadelphia Fed index pushed Treasury prices up and yields down as traders shifted money into the their favorite hiding spot. The yield on the 10-year note slipped to 1.61 percent, down from 1.63 percent late Wednesday.

Material and energy companies, whose fortunes are closely tied to economic swings, led eight of the 10 industry groups within the S&P 500 index lower. Utilities and telecommunication companies, which are considered defensive investments because of their reliable cash flows and rich dividends, edged higher. Just 15 of the 500 companies in the index rose.

In Europe, auditors calculated that Spain's troubled banks need as much as (EURO)62 billion ($78.76 billion). A Bank of Spain official said this scenario was much less than the (EURO)100 billion that the 17 countries in the euro currency union said they would provide for Spain's banking sector.

Among stocks making big moves:

— ConAgra Foods, a major food maker whose brands include Hebrew National and Chef Boyardee, gained 4 percent, leading the S&P 500. The company's adjusted earnings and sales topped Wall Street's expectations. The stock climbed 95 cents to $25.55.

— Bed Bath & Beyond plunged 15 percent, the most in the S&P 500. The retailer said it expects weaker earnings in the current quarter than analysts expected even though it reported better profits after the market closed Wednesday. Bed Bath & Beyond's stock lost $11.23 to $62.44.

— Red Hat slumped 5 percent. The largest provider of the Linux open source operating system for computers reported weak figures for deferred revenue. Red Hat's stock dropped $3.19 to $53.29.