NEW YORK (TheStreet) -- The major U.S. stock averages finished just above session lows Tuesday as the International Monetary Fund's downgrade of its global economic outlook added to investor skittishness heading into the start of the new earnings season.

Greece was also in focus as German Chancellor Angela Merkel was greeted by protests over austerity measures during her first visit to the country since the debt crisis began. Uncertainty about Spain's bailout plans persisted as well.

The

Dow Jones Industrial Average

closed down 110 points, or 0.81%, at 13,473. The blue-chip index, which has now fallen two straight days, is still up 10.3% so far in 2012.

Breadth within the Dow was very negative with losers ahead of winners, 27 to 3. The biggest percentage decliners were

Intel

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,

Microsoft

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, and

Johnson & Johnson

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.

Johnson & Johnson shares finished down 1.5% after the stock was cut to sell from neutral at

Goldman Sachs

, which said the drugs giant's growth potential is already reflected in the price and that the company needs more "transformational pipeline opportunities."

Boeing

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,

McDonald's

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, and

Alcoa

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were posting gains.

Shares of Alcoa were up marginally in after-hours action after the aluminum producer -- the first Dow component to report each quarter -- delivered a

surprise profit

, helped by productivity improvements and strong sales.

James Kee, president and chief economist of San Antonio's South Texas Money Management believes the low expectations about the third quarter, which is anticipated to see the first year-over-year earnings decline for the S&P 500 since the third quarter of 2009, could work in the favor of the companies who do manage to exceed estimates.

"We don't really expect to see that for companies in general though -- maybe a couple of handful of core companies if they beat for whatever reason," he said. "It'd be a much bigger event because of the pessimism."

Kee thinks the companies that miss expectations will likely be those with more international exposure given the slowdown in China.

The

S&P 500

lost more than 14 points, or 0.99%, to settle at 1441.48, while the

Nasdaq

saw the deepest selling, dropping more than 47 points, or 1.52%, to finish at 3065.

The weakest sectors in the broad market, which saw every industry group in decline, were technology, capital goods, conglomerates and health care.

Apple

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shares continued their recent weakness, losing 0.36% on the day, but the stock did bounce more than $10 off its session low of $623.55 to close at $635.85. The stock, which has pulled back roughly 10% since hitting an all-time high of $705.07 on Sept. 21, was initiated at neutral by Nomura on Tuesday.

Despite worries about earnings season, the market overall has remained strong to this point of 2012, with the major averages still sitting near record highs, and Kee of South Texas Money Management doesn't believe current valuations are dependent on a strong earnings season but rather signs that the eurozone is making progress in handling its debt issues.

"I think as Europe has kind of ring-fenced its financial problem to where it's less of a risk to the global financial system ... I think risk premiums, and consequently the discount rates have come down, and that's what's moved the markets."

The International Monetary Fund set a negative tone early on Tuesday with its latest world economic outlook, which was unveiled in Tokyo ahead of meetings there. The organization said it expects the global economy to grow 3.3% in 2012 and 3.6% in 2013, below prior forecasts of 3.5% and 3.9% respectively.

"Low growth and uncertainty in advanced economies are affecting emerging market and developing economies through both trade and financial channels, adding to homegrown weaknesses," said IMF Chief Economist Olivier Blanchard.

However, prospects could improve if clouds over the euro area and the U.S. "fiscal cliff" are lifted, the report added.

On the U.S. economic front Tuesday, the National Federation of Independent Business' small business optimism index fell to 92.8 in September from 92.9 in August, a slight disappointment with the consensus at 93.5.

The FTSE 100 in London finished down 0.54% and the DAX in Germany closed lower by 0.78% Tuesday.

The Nikkei Average in Tokyo finished down 1.06%. The Hang Seng in Hong Kong closed up by 0.54% after a big liquidity injection by China's central bank into the country's money markets.

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November crude oil futures rose $3.06 to settle at $92.39 a barrel on rising Middle East tensions. December gold futures closed down $10.70 at $1,765 an ounce.

The benchmark 10-year Treasury jumped 10/32, diluting the yield to 1.717%. The dollar rose 0.48%, according to the

dollar index.

On the corporate front, shares of

Yum! Brands

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were gaining more than 4% in after-hours action after the restaurant operator, whose brands include Pizza Hut, Taco Bell and KFC, topped Wall Street's profit view for its third-quarter results and lifted its full-year outlook to at least adjusted earnings of $3.24 a share.

Composite and building materials systems company

Owens Corning

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cut its 2012 earnings forecast amid weakness in its roofing and composites businesses. Shares dropped 8.3%.

Shares of

Edwards Lifesciences

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plunged more than 20% after the heart valve maker, provided a weak outlook for the third quarter, citing the impact of austerity measures in Europe and other factors.

Power and hand tools supplier

Stanley Black & Decker

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reached an agreement to sell its hardware and home-improvement unit to

Spectrum Brands

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for $1.4 billion in cash. Stanley Black & Decker shares fell 2.7%; Spectrum Brands shares surged 11.9%.

AngioDynamics

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posted a fiscal first-quarter loss on Monday of 2 cents a share; analysts had expected the medical instruments maker to report earnings of 9 cents a share. AngioDynamics also announced plans to buy Vortex Medical for $15 million. The stock lost 11%.

Shares of

Principal Financial

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fell 2% after the insurance company agreed to buy Chilean pension company

AFP Cuprum

for $1.5 billion.

Homeopathic and health products company

ProPhase Labs

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received a sweetened acquisition proposal of $1.60 a share in cash from

Matrixx Initiatives

. The new bid is 14% above a previous offer of $1.40 that was turned down by ProPhase, whose shares surged 12.6%.

British bank

Barclays

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has agreed to acquire the deposits, mortgages and business assets of

ING Groep's

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ING Direct UK. ING ADRs slipped 2.6% and Barclays ADRs were down 1.2%.

--Written by Andrea Tse and Joe Deaux in New York.

>To contact the writer of this article, click here:

Andrea Tse

.

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