Wall Street sank in volatile trading on Thursday, with the S&P 500 down more than 4 percent as weak U.S. economic data pressured markets already beaten down by renewed fears about the health of European banks.

The losses extended a slide in stocks that began in late July, with the S&P 500 now off 15.7 percent from its April 29 closing high. Economic worries on both sides of the Altantic have caused investors to exit risky assets.

Volatility rose, with the CBOE Volatility Index or VIX, a barometer of Wall Street anxiety, up 39.5 percent at 44.05. More investors were taking out protective positions against declines in the market.

The lack of buyers in the market means that the market is susceptible to volatility and significant declines like we saw today, said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York. You need a mix of buyers and sellers to create stability. Even a bit of panic selling can result in a big swing.

In the broad sell-off, sectors associated with growth were hit hard. Top drags on the Dow included shares of IBM, down 5.4 percent at $162.22, and United Technologies, down 5.7 percent at $68.01. On the Nasdaq, shares of Oracle fell 9 percent to $25.

Investors reacted to the latest report to highlight fears of another recession, a survey of U.S. Mid-Atlantic factory activity. The Philadelphia Federal Reserve Bank's index dropped in August to its lowest level since March 2009.

The Dow Jones industrial average plunged 487.18 points, or 4.27 percent, to 10,923.03. The Standard & Poor's 500 Index dropped 59.26 points, or 4.96 percent, to 1,134.63. The Nasdaq Composite Index slid 136.41 points, or 5.43 percent, to 2,375.07.

Bank shares also fueled the market's declines, with the KBW Banks Index down 5.6 percent.

A Wall Street Journal report said regulators are questioning the U.S. units of Europe's biggest banks more closely.

Among banks, Citigroup Inc lost 7.3 percent to $27.67, and Morgan Stanley shed 6.3 percent to $15.94.

Shares of luxury retailer Tiffany & Co dropped 7.7 percent to $59.30.

Economists at Morgan Stanley lowered the outlook for global growth and said the United States and the euro zone are dangerously close to recession.

(Reporting by Ashley Lau; Editing by Jan Paschal)