Stocks fell on Wednesday after data showed deterioration in the employment and housing markets, underscoring concern that problems of the subprime mortgage market were spreading to the wider economy.

A rapid succession of economic reports showed a plunge in pending U.S. home sales, a smaller-than-expected rise in private sector employment and a surge in lay-offs, especially in the financial services sector.

Citigroup Inc fell after The Wall Street Journal said the bank and others could be burdened by affiliated investment vehicles that issued billions in short-term debt.

The ADP National Employment survey showed private employers added 38,000 jobs last month, well short of the 83,000 economists had forecast. The ADP report precedes Friday's non-farm payrolls report from the Labor Department, key data for the Fed in setting interest rates.

The numbers we see this month are the first ones where you're going to see some effect of the subprime situation and its ripple effects, said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm, based in Toledo, Ohio. How dramatic and how long-lasting they are is critical. That's what the Fed's going to be watching.

The Dow Jones industrial average was down 130.63 points, or 0.97 percent, at 13,318.23. The Standard & Poor's 500 Index was down 16.62 points, or 1.12 percent, at 1,472.80. The Nasdaq Composite Index was down 18.94 points, or 0.72 percent, at 2,611.30.

Indexes took a leg lower after a report showed pending sales of previously owned U.S. homes fell by a surprising 12.2 percent to 89.9 in July as credit tightened up. It was the lowest reading of the housing indicator since September 2001.

It's July data that's before all of the subprime woes really hit the news services in August, so I imagine August is going to be worse, said Todd Clark, managing director of stock trading at Nollenberger Capital Partners in San Francisco.

In another sign of weakness in the job market, a report by consultants Challenger, Gray & Christmas Inc showed planned U.S. lay-offs surged 85 percent last month, Job cuts in the financial sector reaching their highest since the firm began keeping track in 1993.

Citigroup's stock fell 1.8 percent to $46.36 and was the No. 2 drag on the S&P.

Retail shares slumped after Costco Wholesale Corp, the largest U.S. warehouse club, reported that sales at stores open at least a year were well below analyst expectations in August.

Costco shares were down 5.6 percent to $58.17 on the Nasdaq.

Shares of Mattel Inc could be in for a rocky session after the toy maker announced a third recall of Chinese-made toys, saying it would take back more than 800,000 units globally that contained impermissible lead levels.

Mattel shares were down 3.5 percent to $21.20 on the NYSE.