US STOCKS-Wall St lower as retail sales, Europe outlook weigh

* Retail sales data worse than expected

* Gloomy European outlook weighs

* Intel fined record $1.5 billion

* Defensive drugmaker shrs climb

* Indexes down: Dow 1.8 pct, S&P 1.9 pct, Nasdaq 2 pct

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By Edward Krudy

NEW YORK, May 13 (Reuters) - U.S. stocks retreated on Wednesday after key U.S. retail sales data came in worse than expected, dampening hopes of a quick economic recovery.

News from Europe also weighed on sentiment as top officials said major European economies still have some way to go before seeing a revival.

Shares in Wal-Mart Stores Inc (WMT.N), the world's biggest retailer and a bellwether for the sector, fell nearly 2 percent to $49.71, while Macy's Inc (M.N) dropped 4.3 percent to $11.82 after the department-store operator stuck to its full-year outlook for a decline in sales. The S&P retail index .RLX fell 2.7 percent.

Government data showed that sales at retailers fell for a second straight month in April. Analysts had forecast no change or even a small increase after disastrous motor vehicle sales were excluded. [ID:nN13384420]

"The market was topping and retail sales are part of the scenario that things haven't got much better yet," said Carl Birkelbach, head of Birkelbach Management in Chicago. "I have become a little bearish here." Consumer spending accounts for two-thirds of U.S. economic activity.

The Dow Jones industrial average .DJI lost 153.64 points, or 1.81 percent, to 8,315.47. The Standard & Poor's 500 Index .SPX dropped 17.33 points, or 1.91 percent, to 891.02. The Nasdaq Composite Index .IXIC fell 35.51 points, or 2.07 percent, to 1,680.41.

But shares of drugmakers rose for a second day as analysts said investors were pulling cash out of the financial and technology sectors in favor of more defensive plays.

Merck & Co Inc (MRK.N) added 4 percent to $25.97, while Pfizer Inc (PFE.N) climbed 3 percent to $15.38, and Johnson & Johnson (JNJ.N) rose 0.7 percent to $55.36. A pharmaceutical sector index .DRG climbed 1.42 percent.

The Bank of England said the British economy will recover more slowly than previously thought, and German Chancellor Angela Merkel said she did not expect that economy to return to 2008 levels in 2010.