Wall Street falls on profit, growth worries

NEW YORK (Reuters) - Stocks fell on Monday as the start of the earnings season highlighted investor worries about the profit outlook amid signs of slowing global growth and continuing European debt problems.

Monday's decline, the third in a row for the S&P 500 index, also was fueled by weak economic data in Asia and climbing Spanish and Italian bond yields.

Alcoa Inc will kick off the earnings season after the closing bell when the aluminum giant is expected to post a 5-cent per share profit for the second quarter. Its shares slipped 1.1 percent to $8.63.

Corporate outlooks are at their most negative in nearly four years, and companies that have already reported have shown lackluster growth. Nearly two dozen S&P firms have already cited Europe's woes - which seem to be worsening - as a concern.

"We think 2Q earnings for the S&P 500 will be OK this quarter ... we're calling for a small 2 percent beat. That said, we expect the tone of earnings season to be quite negative," said Jonathan Golub, chief strategist at UBS.

Investors will closely monitor corporate earnings for signs the euro zone debt crisis has dented profits, especially among multinational companies.

Italian borrowing costs continued to rise on Monday while Spanish 10-year yields rose above 7 percent, seen as unsustainable in the longer-term and reflecting doubts over how measures agreed last month to stem the crisis will be implemented.

In economic news, machinery orders in Japan fell at a record pace in May, while inflation in China eased to a 29-month low, suggesting falling demand from Europe and the United States for exports.

The overseas data comes on the heels of Friday's disappointing U.S. jobs report, which showed non-farm payrolls grew by only 80,000 in June.

The Dow Jones industrial average <.DJI> was down 73.49 points, or 0.58 percent, at 12,698.98. The Standard & Poor's 500 Index <.SPX> was down 6.53 points, or 0.48 percent, at 1,348.15. The Nasdaq Composite Index <.IXIC> was down 14.46 points, or 0.49 percent, at 2,922.87.

Stocks pared losses, and some analysts said the picture was not all bleak.

"While reasons for optimism seem to be few and far between these days, reasons for extreme pessimism are too. Although structural issues in Europe are far from resolved, it appears that the threat of a near-term market meltdown has been somewhat alleviated for now," said Randy Frederick, managing director of active trading & derivatives at Charles Schwab.

"From a technical perspective, the S&P 500 remains about 10 points above the 1,342 support level and the 50-day moving average (at 1,340), so even a small pullback is likely to find some solid support around that level.

UBS Investment Research downgraded payment processors Visa Inc and MasterCard Inc to "sell" from "neutral," citing slower consumer spending in the United States and sluggish global economic growth. Visa shares were down 1.3 percent at $123.59 and MasterCard shares lost 2.5 percent to $430.51.

Amerigroup Corp jumped 38 percent to $88.82 after the company agreed to be acquired by rival WellPoint Inc for about $4.46 billon. WellPoint shares advanced 3 percent to $61.72, and health insurer Wellcare Health Plans Inc surged 18 percent to $62.32. The Morgan Stanley healthcare payor index <.HMO> climbed 9.3 percent.

(Reporting by Angela Moon; Editing by Kenneth Barry)