* S&P 500 has worst day since August
* US Treasuries yields below 3 pct, first time since Dec
* Euro retreats from four-week high vs dollar
* Oil dips 2 pct, the most in 3 weeks (Updates prices and market activity to close)
By Barani Krishnan
NEW YORK, June 1 (Reuters) - Investors stampeded out of stocks and into bonds on Wednesday as dismal U.S. economic data led the S&P 500 to its worst day in 10 months and benchmark Treasury yields fell below 3.0 percent the first time since December.
U.S. private employers hired far fewer workers than expected in May and manufacturing slowed to its lowest level since 2009, bolstering concerns that the U.S. recovery was running out of steam.
"The sugar high that has buoyed the U.S. economy over the past six months is wearing out, and there is little in economic growth or foundation to show for it," said Douglas Borthwick, a managing director with Faros Trading in Stamford, Connecticut.
Yields on benchmark 10-year U.S. Treasury debt, the favorite asset of investors looking for a safe place to store cash in tough times, hit December lows, hovering around 2.95 percent.
The Standard & Poor's 500 <.SPX> index, like other major Wall Street indices, fell more than 2 percent, its biggest drop since August 11.
Crude oil prices in New York
Growth in the U.S. manufacturing sector slowed sharply in May, with the Institute for Supply Management's index of national factory activity falling to its lowest level since September 2009. For more, see: [ID:nOSL016366]
That followed a report from payrolls processor ADP Employment Services that showed poorer job growth in the private sector than expected, leading many Wall Street banks to slash forecasts for Friday's non-farm payrolls figure from the government.
ADP's report showed employers added a scant 38,000 jobs, nearly four times below that expected by the market.
The U.S. Labor Department will release its payroll numbers for May on Friday. A Reuters poll on Wednesday put payrolls at 150,000 versus an earlier forecast of 180,000.
FOCUS SHARPENS ON FRIDAY JOB NUMBERS
Some analysts, like David Lutz at Stifel Nicolaus Capital Markets in Baltimore, said traders were talking about a "whisper number" of about 100,000 new jobs in May.
"If we have a payrolls number with revisions that is anything like the ADP on Friday, then we are going to struggle over the next couple of months," said Jim Paulsen, chief investment officer at Wells Capital Management.
Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey, concurred: "It's not just about jobs. It's about manufacturing, it's about real estate, it's about consumer confidence. This is one data point in a very broad picture, and it's not encouraging."
At the close, the Dow Jones industrial average <.DJI> was down 279.12 points, or 2.22 percent, at 12,290.67. The S&P 500 <.SPX> lost 30.64 points, or 2.28 percent, at 1,314.56. The Nasdaq Composite Index <.IXIC> was down 66.11 points, or 2.33 percent, at 2,769.19.
In currency trading, the euro surged to a four-week high of
$1.4458 against the dollar
"The euro remains in a kind of no-man's land -- it doesn't want to break much higher but is finding buyers below $1.44," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington.
While optimism over a second bailout for debt-plagued Greece has helped the euro recover from May's sharp lows, some investors remain worried about the global picture, including the scheduled end this month of a $600 billion U.S. stimulus, known as QE2.
Surveys showing factory growth eased in Europe and Asia also sounded a note of caution for investors.
Two surveys showed Chinese factories expanded in May for the 27th straight month, although at a slower pace, suggesting government efforts to curb credit are helping to cool the economy.
In Europe, fresh signs of decline among factories on the euro zone's debt-laden periphery tugged sharply on manufacturing growth across the region as a whole in May. (Additional reporting by Chuck Mikolajczak and Robert Gibbons in New York; Natsuko Waki in London; Editing by Kenneth Barry and Dan Grebler)