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US STOCKS-Wall Street slips on economic worries, ECB eyed
* U.S. manufacturing sector shrinks for 3rd straight month-ISM
* U.S. July construction spending posts largest drop in a year
* Stocks off: Dow 0.7 pct, S&P 0.5 pct, Nasdaq 0.7 pct
By Wanfeng Zhou
NEW YORK, Sept 4 (Reuters) - U.S. stocks fell on Tuesday, led by weakness in shares most sensitive to the health of the economy after a report showed the country's manufacturing sector shrank at its sharpest clip in more than three years last month.
Declines on Wall Street followed a bounce on Friday after Federal Reserve Chairman Ben Bernanke kept alive hopes for further monetary easing, although he stopped short of signaling any imminent action to prop up the economy.
The Institute for Supply Management said its index of national factory activity fell to 49.6 in August from 49.8 in July. The index also shrank in June. A reading below 50.0 indicates contraction. The data followed similar disappointing readings on manufacturing elsewhere in the world.
"What people saw with today's U.S. ISM and the manufacturing data in Asia and Europe yesterday is that the global economy is still slowing down. In particular, cyclical stocks are pretty weak today," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.
The Dow Jones industrial average dropped 90.82 points, or 0.69 percent, to 13,000.02. The Standard & Poor's 500 Index fell 7.42 points, or 0.53 percent, to 1,399.16. The Nasdaq Composite Index shed 21.31 points, or 0.69 percent, to 3,045.66.
The Morgan Stanley cyclical index fell 1.4 percent. The S&P materials sector index lost 1.5 percent.
Shares of Cliffs Natural Resources Inc. fell 4.2 percent to $34.33. Allegeny Technologies Inc. slipped 3.1 percent to 28.71.
Investors are now awaiting comments from European Central Bank President Mario Draghi after the bank's meeting on Thursday. Speculation the ECB will unveil plans to lower borrowing costs for Spain and Italy mounted after Draghi said central bank purchases of sovereign bonds of up to three years maturity did not constitute state aid..
The all-important payrolls report due Friday will also be closely watched. The employment report will be the final major economic report before the Federal Open Market Committee meets on Sept. 12-13.
"What we are seeing is a little bit of profit-taking after three consecutive months of gains in light of the possibility of some more disappointment this week," said Fred Dickson, chief market strategist at D.A. Davidson & Co. Lake Oswego, Oregon.
Separate data also showed U.S. construction spending in July fell by the most in a year as both the private and public sectors cut back on investment, according to a report that could dampen hopes of a pick-up in economic activity in the third quarter.
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