By Saumya Vaishampayan 

Stocks fell on Wednesday after weak economic data added to concerns about U.S. growth at the start of the year.

The Dow Jones Industrial Average declined 77.94 points, or 0.4%, to 17698.18 The S&P 500 fell 8.20 points, or 0.4%, to 2059.69 and the Nasdaq Composite lost 20.66 points, or 0.4%, to 4880.23.

Stocks ended off the lows of the session. The Dow had fallen as much as 191 points in morning trade.

Wednesday's declines follow a tepid start to the year for stocks, with the Dow posting its first quarterly decline in a year. The S&P 500 eked out a quarterly gain of 0.4% and the Nasdaq gained 3.5% in the period, with both indexes notching their ninth quarter in a row of gains. Still, the S&P's first-quarter advance was the smallest in those nine quarters of gains amid weak U.S. economic performance at the start of the year.

Soft economic reports, such as Wednesday's weaker-than-expected private employment and manufacturing data, dim the outlook for corporate profits. That is adding to nervousness in the stock market ahead of first-quarter earnings season, prompting some investors to sell stocks or buy protection in the options market, traders said.

The stock market is closed Friday for the Good Friday holiday.

"You might see an exaggerated move on the downside just based on the fact that the data reports weren't strong and fewer people are around," said Sahak Manuelian, a managing director at Wedbush Securities, adding he noticed larger funds trimming positions on Wednesday.

Treasury prices rose, pushing the 10-year yield down to 1.866% from 1.930% on Tuesday.

Health-care stocks in the S&P 500 fell the most, down 1.2%. Half of the S&P's sectors ended in positive territory, led by strong gains in telecommunications stocks. Those stocks, which pay out large dividends, rose 0.8%. Energy stocks in the index rose along with the price of oil, gaining 0.2%. Crude-oil futures surged 5.2% to $50.09 a barrel.

In economic news, private payrolls rose by 189,000 in March, according to data compiled by payroll processor Automatic Data Processing Inc. and forecasting firm Moody's Analytics. Economists surveyed by The Wall Street Journal had expected an increase of 225,000 jobs.

Separately, data showed manufacturing activity slowed for the fifth month in a row. The Institute for Supply Management's manufacturing purchasing managers index fell to 51.5 in March from 52.9 in February, coming in lower than expectations of 52.5. The ISM's employment index also dropped, further evidence of a slowdown in the labor market last month.

The Labor Department on Friday will release its monthly payrolls report. Economists surveyed by The Wall Street Journal expect employers added 248,000 jobs in March.

The ISM report showed how the strong dollar is weighing on manufacturing, said Krishna Memani, chief investment officer of OppenheimerFunds, which manages $241 billion. "The biggest impact of higher dollar ends up being in the export sector and the biggest impact of a slowdown in exports is in manufacturing," he said.

The stronger dollar and lower oil prices are colliding to form a gloomy picture for earnings, especially for multinational and energy companies. First-quarter earnings for companies in the S&P 500 are expected to fall 4.8% from a year earlier, according to FactSet.

"In companies with stretched valuations, I've seen customers buy protection or reduce positions going into earnings," said Jeffrey Yu, head of single-stock derivatives trading at UBS.

Many investors are bracing for sharper swings in the stock market this year, driven by uncertainty about economic growth, global monetary policy and how moves in currencies and commodities will affect earnings.

Diane Jaffee, who oversees about $8 billion in relative value strategies as a senior portfolio manager at TCW Group Inc., said she viewed pullbacks in stocks as buying opportunities.

While oil prices have tumbled more than 50% since last summer, companies have been reluctant to discuss how they will benefit from lower oil prices, leaving guidance muted, she said.

"Companies clearly don't want to overpromise and underdeliver," said Ms. Jaffee. "Anywhere that energy is a cost of doing business, especially industrial and consumer sectors, is going to win," she added, saying that she is looking for more opportunities in those sectors and in the beaten-up energy sector.

European stocks were bolstered by better-than-expected data that showed eurozone manufacturing activity in March grew at the fastest pace in 10 months. Germany's DAX gained 0.3% and France's CAC 40 rose 0.6%.

In other markets, gold futures rose 2.1% to $1208.10 an ounce. The dollar took a breather, with the euro rising to $1.0760 from $1.0735 on Tuesday.

In corporate news, Macerich Co. rejected Simon Property Group Inc.'s "best and final" bid , saying the offer undervalued the company. Simon subsequently withdrew its $16.8 billion offer. Macerich shares fell 6.6% while Simon shares added 1.2%.

GoDaddy Inc. shares rose 31% above their initial public offering price in their market debut Wednesday. GoDaddy priced its IPO above expectations on Tuesday, at $20 a share.

Write to Saumya Vaishampayan at saumya.vaishampayan@wsj.com

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