Stocks fell on Wednesday as weak reports on the economy's service sector and labor market raised concerns about the strength of the recovery.

Investors paused to assess the sustainability of a rally that has sent the broader S&P 500 index up nearly 48 percent since hitting a 12-year low in early March.

The Institute for Supply Management's service index fell to 46.4 in July, below economists' median forecast for a reading of 48. A level below 50 indicates the sector is shrinking.

The service sector, accounting for about 80 percent of economic activity in the United States, includes banks, airlines, hotels and restaurants.

Investors sentiment was also hurt by data showing higher-than-expected private-sector job losses in July, which suggested that the labor market remained persistently weak.

According to the ADP Employer Service report, U.S. private employers cut 371,000 jobs in July, more than the 345,000 estimated by economists polled by Reuters.

People are not worried about the economic recovery but the strength of the recovery, and today's data on jobs and service sector came out weaker than expected, said Mark Bronzo, portfolio manager at Security Global Advisors in New York.

We have been seeing incremental data improve, but what we really want to see to have this market strong is that the job market is getting better.

The all-important non-farm payroll report for July is set for release on Friday, where investors will look for more definitive signs of an economic turnaround.

Among top drags in the market, shares of consumer product maker Procter & Gamble Co

fell 3 percent to $53.81 as investors fretted about the company's sales forecast.

Deans Foods Inc shares slumped 8 percent to $19.65 after announcing a disappointing full-year outlook, though it posted a better-than-expected quarterly profit.

Tyson Foods Inc , the world's largest meat supplier, fell 4.3 percent to $10.84 after Keybanc cut the company's rating to hold from buy. Analysts at BMO cut Smithfield Foods Inc to market perform from outperform, sending shares down 1.7 percent to $12.70.

Energy shares were also weighing on the market as crude oil prices retreated nearly 1 percent to $70.72 a barrel. Shares of Chevron Corp and Exxon Mobil Corp were both down 1.2 percent.

The Dow Jones industrial average <.DJI> dropped 79.42 points, or 0.85 percent, to 9,240.77. The Standard & Poor's 500 Index <.SPX> fell 8.04 points, or 0.80 percent, to 997.61. The Nasdaq Composite Index <.IXIC> shed 25.38 points, or 1.26 percent, to 1,985.93.

The Commerce Department said on Wednesday new orders received by U.S. factories unexpectedly rose in June, advancing for a third-straight month and bolstering hopes the recession-hit economy was starting to turn the corner.

(Editing by Padraic Cassidy)