US STOCKS-Wall St falls on Europe after weak May showing

* S&P set to post largest monthly loss since September

* U.S. data raises concerns about Friday's payrolls number

* Dow up 0.1 pct, S&P down 0.1 pct, Nasdaq down 0.4 pct

By Rodrigo Campos

NEW YORK, May 31 (Reuters) - U.S. stocks fell on Thursday and were on track to post the largest monthly drop since September as investors focused on Europe's mounting credit problems.

Spain is in the center of the latest developments as markets judged the Madrid government would sooner or later have to ask for outside help to bail out its banks. A report, later denied, of possible plans to help Spain deal with its banking crisis helped Wall Street cut its losses.

"What's missing is a mechanism where the entire continent is exposed to the (debt of) individual countries," said Jim Russell, chief equity strategist for U.S. Bank Wealth Management in Cincinnati. "This type of solution is becoming more popular and more credible."

Shares of U.S. Steel dropped 6.6 percent to $19.98 and Cliffs Natural Resources fell 5.9 percent to $47.87 as energy and materials sectors shares led declines on the S&P 500.

Commodity prices fell as the euro was little changed near 23-month lows against the U.S. dollar. The greenback weakened versus the yen, a sign that investors were moving money into perceived safe-havens.

Equities fell on reports that showed private payroll growth accelerated only slightly last month and claims for jobless benefits rose last week, suggesting the labor market recovery was stalling.

"Europe is the main issue, no question about it, but you have a supporting cast from the U.S. data," said Paul Zemsky, head of asset allocation at ING Investment Management in New York.

The labor data came a day ahead of the U.S. government's monthly payrolls report. A disappointing number in Friday's report could bring back talk of further stimulus from the Federal Reserve.

The Dow Jones industrial average gained 12.72 points, or 0.10 percent, to 12,432.58. The S&P 500 Index slipped 1.48 points, or 0.11 percent, to 1,311.84. The Nasdaq Composite fell 11.24 points, or 0.40 percent, to 2,826.12.

The S&P is down 6.2 percent so far this month, its largest percentage drop since September. The Dow's 5.9 percent drop and Nasdaq's 7.2 percent loss have them on track to post their largest monthly declines in two years.

Shares of TJX Cos rose 2.7 percent to $42.45 after the low-price retailer was among those to report sales at stores open at least a year that beat Wall Street forecasts.

In other data, the Commerce Department said first-quarter economic growth in the United States was slightly slower than initially thought and the Institute for Supply Management-Chicago business barometer fell in April to its lowest level since September 2009.

Ciena Corp climbed 12.6 percent to $13.38 after the network equipment company posted a surprise second-quarter adjusted profit.

Joy Global Inc slumped 5.3 percent to $55.74 after the mining equipment maker cut forecasts.

Facebook Inc shares hit a fresh low of $26.83 before bouncing back to trade at $28.41, or near break-even for the day. The social networking company has fallen in six of its eight trading sessions.