The Dow Jones industrial average was down 92 points at 12,998 as of 10:30 a.m. Eastern time Tuesday. The U.S. stock market was closed Monday for Labor Day. The broader S&P 500 index fell seven points to 1,399 and the Nasdaq composite fell 14 points to 3,053.
Industrial and materials stocks fell the most. Heavy equipment maker Caterpillar was the weakest stock in the Dow average, slipping 3 percent, or $2.35, to $82.98.
The Commerce Department reported that U.S. construction spending fell 0.9 percent in July from June, driven lower by a sharp drop on spending on home improvement projects.
The decline, the worst in a year, followed three months of gains powered by increases in home and apartment construction. New home construction rose again in July, but spending on home renovation projects fell 5.5 percent.
The report sent stocks of home improvement stores lower. Home Depot fell 11 cents to $56.66 and Lowe's was off 14 cents to $28.34.
A separate report delivered more gloomy news on the economy: the third straight month of contraction in U.S. manufacturing. New orders, production and employment all fell in August. Factories have been a key source of jobs and growth since the recession ended in June 2009, but the sector been weak in recent months.
The Institute for Supply Management, a trade group of purchasing managers, says its index of manufacturing ticked down to 49.6 from 49.7 in July, and the lowest reading in three years. A reading below 50 indicates that manufacturing is contracting.
The week will culminate with U.S. nonfarm payroll figures Friday, one of the most important barometers for the world's biggest economy. Federal Reserve chairman Ben Bernanke has indicated that the central bank is inclined to provide new stimulus to the economy.
The weak U.S. economic reports come amid signs of more strains in the global economy.
In Europe, Moody's warned that it could downgrade the credit rating of the European Union as a whole, citing the continent's lingering debt crisis. That sent markets broadly lower in Europe. Benchmark indexes fell 1.2 percent in Germany, 1.3 percent in France and 1.5 percent in Britain.
The focus this week will be on the European Central Bank President Mario Draghi, who is expected to announce details on Thursday of a new bond-buying program intended to bring down the borrowing costs of countries such as Spain and Italy.
Aluminum producer Alcoa was off about one percent to $8l.55, while Alpha Natural Resources fell 29 cents, or 5 percent, at $5.66 and Peabody Energy was down $1, or 5 percent, to $21.70.
Netflix plunged $6 to $53.60, a loss of 7 percent. The online retail giant Amazon.com announced a licensing deal with Netflix's former provider of online movie streaming.