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Stocks fall sharply as traders focus on Spain; Dow drops 104 points

Traders work on the floor of the New York Stock Exchange Tuesday.
Traders work on the floor of the New York Stock Exchange Tuesday.Brendan Mcdermid / REUTERS

Updated at 4:05 p.m. ET: Stocks fell sharply Tuesday, as high bond yields in Spain remained an overhang and a round of disappointing profit outlooks highlighted the effect of the euro zone debt crisis on corporate profits.

The Dow Jones industrial average closed the day down 104 points, off earlier lows and marking its second down day after losing 101 points on Monday amid concerns about the ongoing debt crisis in Europe.

Stocks pared their losses in the final 10 minutes of trading following a report on the The Wall Street Journal's website that said the Federal Reserve is moving closer to taking action to stimulate the economy.

In earnings news, United Parcel Service, seen by many as a proxy for economic activity, reported quarterly results that missed forecasts and cut its 2012 outlook, citing uncertain global economic conditions.

“You look at UPS and FedEx and you think ‘they are sort of the temperature takers of what is going on and if they are tanking why should I step in front of that moving train,’” said Cummins Catherwood, managing director, Boenning and Scattergood in West Conshohocken, Pennsylvania.

“The bigger part to me is when (companies) get through reporting whatever the earnings were they are also saying they don't like what is out there - we are looking down a murky road and it doesn't look cool.”

Whirlpool slumped after the world's largest appliance maker missed Wall Street's expectations for quarterly earnings and sales, hurt by weak demand in Europe and a stronger dollar.

Related: Spain teeters on the edge of a steep 'fiscal cliff'

According to Thomson Reuters data, of the 145 companies in the S&P 500 that have reported earnings to date for the second quarter, 66.9 percent have reported earnings above analyst expectations. Over the past four quarters, 68 percent of companies beat estimates.

Concerns about the euro zone focused on Spain's high borrowing costs due to fears the country may seek a bailout, a survey showing Germany's private sector shrank for a third straight month, and Moody's move to cut Germany's rating outlook to negative.

Indicating the economic malaise from Europe is affecting multiple sectors, Texas Instruments Inc's second-quarter profit beat Wall Street expectations but the company warned that its third-quarter revenue would be weaker than usual as customers are cautious due to global economic uncertainties.

Spanish five-year government bond yields rose above 10-year yields for the first time since June 2001 on Tuesday, as investors fretted about the possibility that Madrid may need a full-blown sovereign bailout.

An even gloomier picture for the overall euro zone's private sector, which shrank for a sixth month in July as manufacturing output nosedived, added to the likelihood that the bloc will slump back into recession.

Reuters contributed to this report.