* Alphabet surpasses Apple as most valuable U.S. company
* Exxon Mobil reports results, cuts capex
* Indexes down: Dow 1.8 pct, S&P 1.9 pct, Nasdaq 2.2 pct (Updates to close)
By Caroline Valetkevitch
Feb 2 (Reuters) - U.S. stocks dropped on Tuesday after another steep drop in oil prices and a disappointing spending forecast from Exxon Mobil.
Shares of Exxon fell 2.2 percent to $74.59 after the oil major reported its smallest quarterly profit in more than a decade, forecast a 25-percent drop in capital spending from 2015 levels and suspended share repurchases.
With Exxon, “not only did the earnings disappoint people, but the fact that they slashed capex so much and they (suspended) their share repurchase program. It’s a good indication that one more large oil company is not seeing an improvement in the environment,” said Michael O‘Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.
Earlier Tuesday, BP Plc reported an annual loss of $6.5 billion, its largest ever.
The S&P energy index slid 3.3 percent, the biggest drag on the S&P 500. Brent and U.S. crude fell as hopes faded for a deal between OPEC and Russia to cut output.
Data so far this earnings period shows the capital spending slump that originated in the hard-hit energy sector was spreading more widely across other U.S. industries.
The Dow Jones industrial average closed down 295.64 points, or 1.8 percent, to 16,153.54, the S&P 500 lost 36.35 points, or 1.87 percent, to 1,903.03 and the Nasdaq Composite dropped 103.42 points, or 2.24 percent, to 4,516.95.
The Dow Jones transportation average ended 2.9-percent lower following news of the first U.S. transmission of the Zika virus.
The S&P 500 is down 6.9 percent since the start of the year. Investors have been concerned about a China-led global economic slowdown, tepid U.S. economic data, the pace of rate hikes by the Federal Reserve and weak earnings. Fourth-quarter S&P 500 earnings are expected to have fallen 4.4 percent from a year earlier, according to Thomson Reuters data.
Bucking the day’s trend, Alphabet was up 1.3 percent at $780.91. Quarterly profit beat estimates late Monday and the Internet giant surpassed Apple as the most valuable U.S. company.
Investors are also keeping an eye on the U.S. election cycle, with Senator Ted Cruz winning the Republican caucus in Iowa on Monday and Democrat Hillary Clinton narrowly edging out Senator Bernie Sanders.
Iowa results created greater uncertainty because there were no clear winners, said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey.
“The bottom line for people who are investing is they prefer a little more certainty than they are seeing right now in either the election or in the energy markets,” he said.
About 8.5 billion shares changed hands on U.S. exchanges, below the 9.2 billion daily average for the past 20 trading days, according to Thomson Reuters data.
NYSE declining issues outnumbered advancers 2,478 to 603, for a 4.11-to-1 ratio on the downside; on the Nasdaq, 2,237 issues fell and 577 advanced for a 3.88-to-1 ratio.
The S&P 500 posted 15 new 52-week highs and 28 lows; the Nasdaq recorded 22 new highs and 143 lows. (Additional reporting by Tanya Agrawal and Lewis Krauskopf; Editing by Don Sebastian and Nick Zieminski)