* Chicago PMI unexpectedly contracts in September
* Private payrolls cut more than expected: ADP
* GDP contracts less than expected in Q2
* Dow off 0.7 pct, S&P off 0.8 pct, Nasdaq down 0.6 pct (Updates to midday, changes byline)
By Ryan Vlastelica
NEW YORK, Sept 30 (Reuters) - U.S. stocks dropped on Wednesday, after an unexpected contraction in Midwest business activity sounded a dour note at the end of a strong quarter.
The Institute for Supply Management-Chicago's business barometer unexpectedly fell to 46.1 in September, a reading that indicates a contraction in the regional economy. The Dow Jones U.S. Industrial Index fell 0.9 percent, pulled lower by General Electric and United Technologies.
The Chicago PMI's September level was below the consensus estimate for a reading of 52 and down from 50 in August.
"The data captures action from the auto complex and shows that post-'cash for clunkers', that environment has softened materially," said Kevin Caron, market strategist at Stifel Nicolaus in Florham Park, New Jersey.
"The fact that the number was bad and influenced by auto production is not helpful for the V-shaped recovery scenario."
The Dow Jones U.S. Automobile Index sank 1.1 percent on Wednesday, while Ford Motor was off 0.9 percent at $7.38.
Another disappointment came from the ADP National Employment Report, which showed that private-sector job cuts were greater than expected in September.
"The ADP number foreshadows the employment report like the PMI number foreshadows factory orders. Both these reports suggest bad numbers coming up," Caron said.
The Dow Jones industrial average fell 69.83 points, or 0.72 percent, to 9,672.37. The Standard & Poor's 500 Index shed 7.96 points, or 0.75 percent, to 1,052.65. The Nasdaq Composite Index dropped 12.41 points, or 0.58 percent, to 2,111.63.
Markets also felt the weight of a late Tuesday report that CIT Group Inc was likely to be handed over to its bondholders. The business lender's stock plunged 34 percent to $1.45.
Nike climbed 7.8 percent to $64.79 a day after it reported a stronger-than-expected profit in its first quarter. The results prompted Goldman Sachs to upgrade the company's stock to "buy" from "neutral."
The market opened higher, after the U.S. Commerce Department's final reading on gross domestic product for the second quarter showed GDP fell at a 0.7 percent annual rate, less than the 1.2 percent expectation.
Bank of America struck a deal to sell a long-term asset management business to Ameriprise Financial for about $1 billion.
BofA shares slid 1.6 percent to $16.88 while Ameriprise climbed 11.4 percent to $36.04.
The S&P 500 is up 14.3 percent for the third quarter, which ends Wednesday. For 2009, the S&P is up 16.5 percent and from a 12-year closing low in early March, it's up about 55 percent. (Editing by Jan Paschal)