US STOCKS-Wall St drops after China cuts its growth target
* AIG selling Asia stake
* Eurozone private-sector data rekindles recession fear
* Dow off 0.4 pct, S&P off 0.6 pct, Nasdaq off 0.9 pct
NEW YORK, March 5 (Reuters) - U.S. stocks fell on Monday, dragged lower by the basic materials and energy sectors after China, the world's second-largest economy, cut its growth target for 2012.
Data showing the U.S. services sector expanded at its fastest pace in a year in February failed to brake the market's decline, with indexes trading near session lows at midday.
China lowered its 2012 target to an eight-year low of 7.5 percent and made "expanding consumer demand" its top priority as Beijing looks to shrink the economy's reliance on external spending and foreign capital.
Materials shares, sensitive to signs of slowing in China's commodity-hungry economy, dropped and were the biggest drag on Wall Street. The S&P materials sector index fell 1.8 percent, while aluminum producer Alcoa Inc fell 3.4 percent to $9.89.
"With China reducing the expected growth rate, the concern is there is the possibility of a bigger downside," said Kate Warne, investment strategist at Edward Jones in St. Louis. "That's why energy and commodities are leading the decline."
Warne said she was surprised there wasn't a more positive reaction to the expansion in the U.S. services sector. The Institute for Supply Management's February services index climbed to its highest level in a year. She said investors were taking profits rather than changing their optimistic view on the economy.
The S&P 500 is up more than 8 percent so far this year, partly on bets on a recovering U.S. economy, as well as expectations that the euro zone's credit crisis will be contained and China will avoid a hard landing in its current business cycle.
The Dow Jones industrial average fell 55.85 points, or 0.43 percent, to 12,921.72. The S&P 500 Index dropped 8.14 points, or 0.59 percent, to 1,361.49. The Nasdaq Composite lost 28.11 points, or 0.94 percent, to 2,948.08.
The S&P 500 dipped below its 14-day moving average, a line it has held for the last 50 sessions in an impressive run.
An S&P index of energy shares slipped 0.9 percent, falling in sync with the material sector on worries about potential slowdown in China's economy. Chevron shares fell 0.6 percent to $109.
Further weighing on investor sentiment, Greece warned it was ready to enforce losses on its private-sector creditors, feeding speculation that an insufficient number of bondholders had voluntarily taken up Athens' debt-swap offer.
The concerns pushed European equities lower after data showing a slowdown in business activity in various euro-zone countries, which rekindled fears the bloc was headed for recession just as monetary policymakers were running out of new ways to boost growth.
American International Group Inc shares rose 2.3 percent to $30.48 after the company said it is selling part of its stake in Asian insurer AIA Group Ltd to raise about $6 billion. AIG plans to use the money to help it pay the U.S. government back for part of the bailout it received after Lehman Brothers collapsed in the fall of 2008.
The Nasdaq came under pressure from iPhone and iPad maker Apple Inc, whose shares tumbled to a session low of $526 in late morning trading on heavy volume. At midday, Apple had retraced some of that loss, but the stock was still down 1.5 percent at $536.99.