* UPS shares fall after outlook, weighing on transports
* Windstream rallies; set to spin off assets into REIT
* Merck up as results beat expectations, but Pfizer slips
* Indexes: Dow flat, S&P off 0.1 pct, Nasdaq up 0.2 pct (Updates to close; adds Twitter and American Express results)
By Ryan Vlastelica
NEW YORK, July 29 (Reuters) - U.S. stocks fell on Tuesday, dropping in a broad selloff as a weak outlook from courier company UPS weighed on sentiment and pressured transportation stocks.
Although a rally in telecom stocks helped to limit the broader market's decline, the S&P 500 ended below its 14-day moving average for a second straight day. Nine of the 10 primary S&P 500 sectors fell on the day.
United Parcel Service shares fell 3.7 percent to $98.86 after the world's biggest courier company slashed its earnings forecast for the year due to spending to boost capacity. It also reported second-quarter earnings that were below expectations.
Rival shipping company FedEx Corp was down 1.6 percent at $147.14. The Dow Jones Transportation index, which is often viewed as a proxy for business activity, fell 1.4 percent. It is about 3 percent away from the record closing high hit last week.
UPS is the latest bellwether name whose results have disappointed investors, following Amazon.com Inc and Boeing Co last week. Nonetheless, this earnings season has largely been a positive for equities.
With more than half the S&P 500 having reported already, almost 70 percent have topped earnings expectations, according to Thomson Reuters data, well above the long-term average of 63 percent. More than 63 percent have topped revenue forecasts, above the long-term average of 61 percent.
"If we started to see more negative outlooks, that would be a reason to pause, but so far this earnings season speaks to the health of corporate America and suggests markets still have room to run," said David Lebovitz, global market strategist at J.P. Morgan Funds in New York.
Telecom stocks were the only sector of the market to rise on Tuesday, adding 2.2 percent after Windstream Holdings filed to spin off assets into a tax-efficient publicly traded real estate investment trust. The stock jumped 12.3 percent to $11.83 in its busiest trading day on record. Frontier Communications added 14.3 percent to $6.79.
After the market closed, Twitter Inc jumped 14.5 percent to $44.20 in extended trading after the social networking company reported second-quarter results, which included revenue that more than doubled. The shares had closed up 1.7 percent in regular NYSE trade ahead of the results.
Dow component American Express Co also reported after the market closed; its shares were little changed after the bell.
The Dow Jones industrial average fell 70.16 points, or 0.41 percent, to 16,912.43, the S&P 500 lost 8.93 points, or 0.45 percent, to 1,969.98, and the Nasdaq Composite dropped 2.21 points, or 0.05 percent, to 4,442.70.
The Nasdaq's decline was tempered by biotechnology shares, with the Nasdaq Biotech index up 1.1 percent.
Dow components Pfizer and Merck, the No. 1 and No. 2 U.S. drug companies, respectively, reported better-than-expected results. Merck's new drugs offset declining sales of those facing generic competition. Pfizer was helped by growing sales of its cancer medicines. Merck rose 1.1 percent at $58.58 while Pfizer shed 1.2 percent to $29.73.
Corning Inc dropped 9.3 percent to $20 after reporting earnings that came in below estimates as demand fell for its Gorilla Glass, which is used in iPhones and Galaxy devices.
Economic data had little impact on the direction of equities.
U.S. consumer confidence jumped in July to a high not seen since October 2007, but single-family home prices fell 0.3 percent in May on a seasonally adjusted basis, falling short of expectations.
President Barack Obama said the United States was imposing new sanctions on Russia in the energy, arms and finance sectors, following similar moves by the European Union in reaction to Moscow's support for rebels in eastern Ukraine.
About 57 percent of stocks traded on the New York Stock Exchange closed lower on the day while about 47 percent of Nasdaq-listed shares ended in negative territory. About 5.59 billion shares traded on all U.S. platforms, according to BATS exchange data, compared with the month-to-date average of 5.54 billion. (Editing by Meredith Mazzilli; Editing by Leslie Adler)