Stocks slumped on Wednesday after retail sales data came in worse than expected, hurting shares in the sector including Wal-Mart Stores Inc and blurring the economic outlook.

Government data showed sales at retailers fell for a second straight month in April, after a string of more upbeat reports suggested a turning point in the economic cycle.

Retail activity is a closely followed indicator, as it accounts for roughly two-thirds of the U.S. economy. Analysts had forecast no change or even a small increase in retail sales, excluding autos.

Shares in Wal-Mart , the world's biggest retailer and a bellwether for the sector, fell 2 percent to $49.64, while department-store operator Macy's Inc dropped 6 percent to $11.62. The department-store operator still expects falling sales this year, citing the uncertain economy. The S&P retail index <.RLX> fell nearly 3 percent.

Return to significant growth (in retailers) is likely to be a lengthy process. The consumer has problems, and it is going to take a while to build up the kind of enthusiasm needed for a robust recovery, said Joe Arsenio, president of Arsenio Capital Management in Larkspur, California.

There is a sense that the market is overshot to the upside, relative to the day to day fundamentals, he added.

The Dow Jones industrial average <.DJI> fell 192.98 points, or 2.28 percent, to 8,276.13. The Standard & Poor's 500 Index <.SPX> lost 24.00 points, or 2.64 percent, to 884.35. The Nasdaq Composite Index <.IXIC> dropped 45.44 points, or 2.65 percent, to 1,670.48.

The U.S. stock market is retreating from a two-month long run-up that saw the S&P 500 rise almost 38 percent from 12-year lows reached in early March.

Shares of big manufacturers were also hurt, with 3M Co down 4.4 percent to $56.93 and United Technologies Corp off 4.8 percent to $49.95, and among the top drags in the Dow industrials.

IPod maker Apple Inc was off 3.3 percent to $120.38 and the top drag in the Nasdaq.

On the upside, shares of drugmakers rose for a second day as analysts said investors pulled cash out of the financial and technology sectors in favor of more defensive plays.

Merck & Co Inc added 3.4 percent to $25.83, while Pfizer Inc
climbed 3 percent to $15.38. A pharmaceutical sector index <.DRG> rose 1.1 percent.

Shares in Intel Corp edged up 0.2 percent to $15.17 after the European Commission imposed a record fine of $1.45 billion on the world's largest chipmaker for what it called antitrust violations.

Shares of Intel's main competitor Advanced Micro Devices Inc rose 1.2 percent to $4.40.

(Reporting by Rodrigo Campos; editing by Jeffrey Benkoe)