* Energy, material shares lead decline
* Weekly jobless claims fall
* Indexes down: Dow 0.9 pct, S&P 0.8 pct, Nasdaq 0.8 pct (Updates to late afternoon)
By Caroline Valetkevitch
June 4 (Reuters) - U.S. stocks fell late on Thursday afternoon as uncertainty remained over a Greece aid deal with creditors and as declining oil and gold prices weighed on energy and materials.
Greece delayed a debt payment to the International Monetary Fund due on Friday and German Chancellor Angela Merkel said talks on a cash-for-reforms deal were still far from an agreement.
The S&P materials index was down 1.2 percent, leading declines in the benchmark index, while energy was down 1 percent.
Data showed U.S. initial claims for state unemployment benefits dropped for the week ended May 30, pointing to some resilience in the labor market ahead of the May payrolls report on Friday.
"There's volatility over events in Europe. Investors seem to be hanging on every last comment," over Greece, said Bruce Zaro, chief technical strategist at Bolton Global Asset Management in Boston. "There's been this feeling that Europe was on its way to better economic growth, but I think this has brought it back to the front burner" in terms of concerns for the market.
At 2:59 p.m., the Dow Jones industrial average fell 159.55 points, or 0.88 percent, to 17,916.72, the S&P 500 lost 16.58 points, or 0.78 percent, to 2,097.49 and the Nasdaq Composite dropped 40.85 points, or 0.8 percent, to 5,058.39.
Investors also digested the International Monetary Fund's comment urging the Federal Reserve not to raise rates until there are clear signs of a pickup in wages and inflation.
Shares of chemical maker LyondellBasell Industries shares were down 2.7 pct at $99.99, leading declines in the materials sector, after unregistered sale by an existing holder or holders, according to a Reuters report.
AerCap Holdings fell 3.6 percent to $48.54 after insurer AIG hastened efforts to sell stake in the aircraft leasing company.
Five Below jumped 8 percent to $37.94 after the teen merchandise retailer increased its full-year forecast.
Declining issues outnumbered advancing ones on the NYSE by 2,350 to 687, for a 3.42-to-1 ratio on the downside; on the Nasdaq, 1,985 issues fell and 751 advanced for a 2.64-to-1 ratio favoring decliners.
The S&P 500 was posting 3 new 52-week highs and 6 new lows; the Nasdaq Composite was recording 72 new highs and 29 new lows. (Additional reporting by Tanya Agrawal; Editing by Saumyadeb Chakrabarty and Nick Zieminski)