Banks were on track for their worst day in two months on Thursday.
Both the SPDR S&P Bank ETF (KBE) and the SPDR S&P Regional Bank ETF (KRE) neared session lows in early trading, down more than 1 percent each. The ETFs later recovered some of those losses. The KBE ended the day down 0.56 percent while the KRE ended the day 0.7 percent.
The regional banks ETF was pacing for its worst day since June 27, while the bank ETF were on track for its worst day since July 5.
The banks extended their losses after the ISM manufacturing survey came in at 49.4, indicating a surprising contraction in August manufacturing activity. Economists expected the ISM Manufacturing to hit 52.2 in August, according to a Thomson Reuters consensus estimate.
Even with Thursday's losses, both ETFs are positive in the past year. Over the last 12 months, the banks have gained 4 percent while regional banks have gained more than 8 percent.
— CNBC's Gina Francolla contributed to this report.