(Reuters) - Wall Street dropped more than 1 percent on Tuesday, hit by signs the euro zone crisis is worsening and evidence that Europe's slowdown is hurting U.S. companies, including UPS.

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. The shares fell 4.8 percent to $74.24, pulling the Dow Jones Transportation average .DJT down 1.6 percent.

The weak results follow a string of stronger-than-expected earnings that lifted stocks last week. Still, investors had worried about Europe's effect on U.S. corporate sales heading into the reporting period.

AT&T Inc lost 2.9 percent to $34.39 after the company reduced its outlook for business services this year. The S&P telecom index .GSPL dropped 2.1 percent as the worst performing S&P sector.

"We are going through an adjustment period where there has been a lot of talk about Europe facing a recession in 2012. Now we are actually seeing it in the earnings and the market is reacting to that," said Gail Dudack, chief investment strategist at Dudack Research Group in New York.

Whirlpool Corp slumped 7.4 percent to $62.31 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.

According to Thomson Reuters data through Tuesday morning, of the 145 companies in the S&P 500 that have reported earnings for the quarter, 66.9 percent have beaten analysts' expectations. Over the past four quarters, 68 percent have beaten estimates.

Concerns about the euro zone focused on Spain's high borrowing costs as the country paid the second highest yield on short-term debt since the launch of the euro. European Union officials said Greece had little hope of meeting the terms of its bailout.

The Dow Jones industrial average .DJI was down 165.56 points, or 1.30 percent, at 12,555.90. The Standard & Poor's 500 Index .SPX was down 17.93 points, or 1.33 percent, at 1,332.59. The Nasdaq Composite Index .IXIC was down 33.63 points, or 1.16 percent, at 2,856.52.

The decline put the S&P 500 on track for its third straight loss as the index again tested its 50-day moving average, a technical support level which could trigger more selling if convincingly broken.

Cisco Systems Inc fell 5.8 percent to $15.13 after VMWare Inc said it would acquire privately held Nicira Inc, a move seen as a threat to Cisco's core switching and routing business.

DeVry Inc dropped 24.1 percent and was the biggest percentage decliner on the S&P 500 after the for-profit education provider warned that profit for the June quarter will fall far short of market expectations.

In another sign of the economic malaise from Europe, Texas Instruments Inc warned that its third-quarter revenue would be weaker as customers show caution due to global uncertainties. The shares lost 1.3 percent to $26.48.

Spanish five-year government bond yields rose above 10-year yields for the first time since June 2001 as investors fretted about the possibility that Madrid may need a full-blown sovereign bailout. The 10-year note last traded at around 7.6 percent.