* Japan's economy shows growth, but recovery doubts linger * Lowe's Cos' shares drop on weak outlook * New York Fed manufacturing data better-than-expected * Dow down 1.7 pct, S&P 500 off 2.1 pct, Nasdaq off 2.4 pct (Updates to midday, changes byline)
By Ryan Vlastelica
NEW YORK, Aug. 17 (Reuters) - U.S. stocks slid on Monday, dropping after a bleak outlook from home improvement giant Lowe's and weak economic figures from Japan reignited concerns about world demand.
Lowe's stock was down about 8 percent after the company gave an outlook that fell short of Wall Street's estimates. The second-largest home improvement retailer said it was slowing plans for expansion, another signal that the recovery in consumer spending is still tentative.
The sell-off in the United States followed selling in both Asia and Europe, where key indexes hit fresh lows. Banks and commodity-related stocks dominated the selling, as they are most sensitive to economic weakness.
In Japan, data showed that while the economy pulled out of recession in the second quarter, economists warned that exports could slow as the effect of stimulus measures wears off.
"We're getting a lot of follow-through from the overnight markets," said Dan Faretta, senior market strategist at Lind-Waldock in Chicago. "People were positive about the economy turning around, but this has brought realization that the recession isn't over, and there's a lot of the way to go."
The S&P 500's run-up of nearly 50 percent from a 12-year low in early March, which was fueled by hopes for an economic turnaround and better-than-expected corporate earnings, has led to concerns that the market is overextended. Disappointing retail sales and consumer sentiment data last week aggravated those concerns.
"The market is second-guessing itself on the recovery thesis," said Chip Hanlon, president of Delta Global Advisors in Huntington Beach, California. "It had been believing that the consumer will start to show some signs of life, but we're not seeing that. The consumer is still in the tank."
Lowe's Cos gave a third-quarter earnings outlook that was below expectations, with Chief Executive Officer Robert Niblock saying consumers remain under pressure even though housing is showing signs of bottoming out. Monthly housing starts figures are due out on Tuesday.
The stock dropped 8.2 percent to $20.95 and pushed shares of rival Home Depot, a Dow component, down 3 percent to $26.32.
The Dow Jones industrial average fell 156.66 points, or 1.68 percent, to 9,164.74. The Standard & Poor's 500 Index dropped 20.90 points, or 2.08 percent, to 983.19. The Nasdaq Composite Index lost 48.50 points, or 2.44 percent, to 1,937.02.
Financial stocks trailed the wider market. On Friday, Colonial Bank was shuttered and its assets were sold to BB&T Corp, marking the largest bank failure so far this year.
Faretta said that Colonial's failure was "adding fuel to the fire" in Monday's sell-off.
The KBW bank index fell 3.3 percent to 44.29 while the S&P Financial Index lost 3.2 percent to 185.41.
Dow components JPMorgan Chase and Bank of America tumbled, with JPMorgan's stock down 2.5 percent at $41.40 and Bank of America's shares down 3.2 percent at $16.83.
In a bright spot for the stock market, a gauge of New York state's factory sector was better than expected in August. [ID:nN17371906] (Editing by Jan Paschal)