The news sent steel company stocks sharply lower because China uses half of the steel the world produces. AK Steel Holding Corp. lost 6 percent; US Steel fell 4.7 percent.
The lower projection for Chinese growth also hurt stocks of U.S. materials companies that depend on China for profits. Caterpillar, which makes heavy equipment, fell 2.1 percent. Aluminum maker Alcoa fell 3.6 percent.
The Dow fell as much as 93 points in the morning before recouping some of that loss in the afternoon. Some market strategists cautioned against reading too much into China's projection.
"China is still a driver of global growth, even at its slightly reduced pace," said Richard Cripps, chief market strategist at Stifel Nicolaus. "The growth rate is still far better than the U.S. and Europe."
The Standard & Poor's 500 dropped 5.30 points, or 0.4 percent, to 1,364.33.
The Nasdaq composite index fell 25.71 points, or 0.9 percent, to 2,950.48.
Also weighing on the market were worries that not enough private investors would participate in a bond swap in Greece and accept bonds of lower face value and lower returns. Trying to reassure world markets, a group representing a dozen banks, insurers, and investment funds that hold Greek government bonds said they would participate in the swap by the Thursday-night deadline. Greece needs private investors to sign on before it gets a second international bailout.
The stock market losses were limited by some positive news from the U.S. economy. Service companies expanded in February at the fastest pace in a year, helped by a rise in orders and job growth.
The Institute for Supply Management said Monday its index of nonmanufacturing activity rose to 57.3, up from 56.8 in January, the third straight increase. Any reading above 50 indicates expansion.
In recent months, markets have been lifted by signs of improvement in the U.S. economy. U.S. stock indexes have been trading at their highest levels since before the collapse of the Lehman Bros. investment bank in 2008.
Among other stocks making big moves was Alpha Natural Resources, a coal producer, which fell 6 percent after the price of natural gas fell close to 5 percent due to weak demand for gas in a mild winter. US Airways Group fell 8.4 percent as passenger revenue growth slowed in February.
