NEW YORK - Bad economic news and doubts about the market's ability to rally dealt stocks a huge setback.

The Dow Jones industrials fell 187 points yesterday, their biggest drop since April 20. All the major market indexes fell more than 2 percent.

The slide began in Asia and Europe and spread to the U.S. as a strong dollar pushed commodities prices sharply lower. Commodities including oil tend to be a hedge against a weak dollar. So, when the greenback is stronger, investors feel less need to protect themselves against it, and they start selling commodities. That in turn tends to pull down the stocks of basic materials producers who profit from higher prices.

New worries about the economy also emerged after an index of manufacturing in New York indicated that demand weakened in June. The weaker report from the Federal Reserve Bank of New York ran counter to the gradual improvement traders have grown accustomed to with other economic readings.

Analysts said stocks were also losing ground because investors were questioning what it would take to move the market higher.

The Dow fell 187.13, or 2.1 percent, to 8,612.13, and returned to a loss for the year. The broader Standard & Poor's 500 index fell 22.49, or 2.4 percent, to 923.72, and the Nasdaq composite index fell 42.42, or 2.3 percent, to 1,816.38. Both indexes still show a gain for 2009.

Overseas, Japan's Nikkei average lost 1 percent, while Britain's FTSE 100 fell 2.6 percent, Germany's DAX fell 3.5 percent and France's CAC-40 lost 3.2 percent.

The dollar's rise helped send oil prices lower. Light, sweet crude fell $1.42 to settle at $70.62 per barrel on the New York Mercantile Exchange.

Investors often welcome falling commodities prices because the lower costs will have benefits across the economy. But traders have also been looking for gains in commodities because that could signal resources are becoming more scarce as demand improves.

Commodities producers fell yesterday. Aluminum maker Alcoa Inc. and Freeport-McMoRan Copper & Gold Inc. slid. Alcoa fell 78 cents, or 6.5 percent, to $11.21, while Freeport-McMoRan fell $3.37, or 5.8 percent, to $55.14.

In corporate news, Goldman Sachs lowered its rating on Wal-Mart Stores Inc. to "Neutral" from "Buy," seeing few catalysts that could push the stock higher. The retailer fell $1.38, or 2.8 percent, to $48.46.