U.S. stocks fell on Wednesday as a report showing a surprising drop in private- sector employment stoked concerns about the health of the labor market two days before the government's key jobs data.

Wall Street took a one-two punch from ADP Employer Services data showing U.S. private-sector employers unexpectedly cut jobs in March and a separate report that showed U.S. Midwest business activity expanded less than expected last month.

The news was a setback for investors anxious for more evidence that the economic recovery is gaining strength and led investors to lock in profits in strong-performing sectors, such as consumer discretionary shares, which rose more than 10 percent for the quarter.

The ADP report is not a good sign. We want to see some job growth, said Sasha Kostadinov, portfolio manager at Shaker Investments in Cleveland. Friday's jobs data is going to be a big number because people are starting to get anxious to see some growth.

Even so, the benchmark S&P 500 <.SPX> racked up its fourth straight quarterly advance, and analysts expect the second quarter to get off on solid footing if the upcoming earnings season proves stronger than expected.

The session's laggards included this quarter's best performers such as Boeing Co , which fell 1.3 percent on Wednesday to $72.61, and consumer discretionary stocks, with Home Depot off 1.04 percent at $32.35, and Macy's Inc , down 1.6 percent at $21.77.

RESEARCH IN MOTION DROPS LATE

Technology shares, which have also underpinned the market's run-up, also sold off. After the bell, Research In Motion shares fell 7.4 percent to $68.50 after the BlackBerry maker posted quarterly results. The stock had ended at $73.97 on Nasdaq, down 1.3 percent ahead of the earnings report.

In the regular session, the Dow Jones industrial average <.DJI> dropped 50.79 points, or 0.47 percent, to 10,856.63. The Standard & Poor's 500 Index <.SPX> shed 3.84 points, or 0.33 percent, to 1,169.43. The Nasdaq Composite Index <.IXIC> fell 12.73 points, or 0.53 percent, to 2,397.96.

The Chicago Purchasing Managers Index showed business activity in the U.S. Midwest slipped to 58.8 in March -- falling short of economists' consensus forecast.

Investors were looking to the ADP report for insight into the coming March non-farm payroll number, which will be released on Good Friday, when the U.S. stock market will be closed.

The median projection from the 20 economists who have forecast payrolls most accurately over the past year predicts 200,000 jobs were created in March -- slightly above the 190,000 median forecast from a broader sample of 82 economists -- according to a Reuters poll.

Boeing, a big manufacturer, was a top drag on the Dow; but it remained the Dow's best-performing stock so far this year, up about 34.1 percent.

3M Co , off 0.8 percent at $83.57, was the Dow's second-worst drag behind Boeing.

On Nasdaq, shares of Microsoft Corp declined 1.6 percent to $29.2875, while Apple Inc dropped 0.4 percent to $235.00, pausing after string of record closes for the iPhone maker in recent days.

A legal ruling in U.S. oil giant Chevron's favor drove the Dow component's stock up 0.7 percent to $75.83, which helped limit the Dow's decline and prompted investors to buy some energy-related shares. A jump in oil's price above $83 a barrel to its highest close since October 2008 also helped the sector.

STOCKS GAIN FOR MARCH AND QUARTER

The S&P 500 is up 72.9 percent from the March 2009 bottom.

The first-quarter gains for the major indexes are: Dow, up 4.1 percent; S&P 500, up 4.9 percent, and Nasdaq, up 5.7 percent.

For the month of March alone, the Dow rose 5.1 percent, the S&P 500 rose 5.9 percent and the Nasdaq gained 7.1 percent.

This rally has spurred some investors to trim some of their stock bets, however. Investors pulled $926 million from domestic stock funds in the week ending March 24, the first drawdown since the week ended March 3, according to the Investment Company Institute.

(Reporting by Ellis Mnyandu; Editing by Jan Paschal)

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