Standard & Poor's 500 earnings for the second quarter are now forecast to grow 7.4 percent, down from an early January forecast of 10.1 percent, according to Thomson Reuters data.

But remove profits-generating machine Apple Inc (AAPL.O) and the financial sector .GSPF, which has weak year-ago comparisons, from the numbers and the forecast looks much worse. After those exclusions, the rest of the index is expected to report a 0.9 percent drop in second-quarter profits.

Most S&P 500 sectors have seen estimates fall since January, with energy, materials and utilities all expected to see profit declines from a year ago, while telecommunications and healthcare profits are barely rising.

"Those responsible for giving guidance, they have to be worried about the economy right now, the worldwide economy," said Kenneth Naehu, a managing director at Bel Air Investment Advisors in Los Angeles, which manages about $6.5 billion. "Fear is embedded in the marketplace."

The world's economic outlook darkened on Friday as reports showed U.S. employment growth slowing sharply, Chinese factory output barely growing and European manufacturing falling deeper into malaise.

Investors stampeded to safe-haven U.S. and German government bonds amid growing worries over Spain's parlous finances and debt-stricken Greece's uncertain future in the single currency area, concerns that were compounded by weak U.S. jobs data.

About 47 percent of S&P 500 sales come from abroad and a little over 14 percent are derived from Europe, according to S&P data.

U.S. stocks, too, are quickly losing steam after their strong start to the year. The Dow Jones industrial average .DJI ended in negative territory for the year on Friday, while the S&P 500 has wiped out most of its year-to-date gains. It was up 12 percent at the end of the first quarter.

ENERGY, MATERIALS DOWN

Reduced demand from China and Europe has hit commodities prices and in turn the producers. U.S. crude oil extended losses for a fifth week on Friday and lost 8.4 percent for the week.

The financial sector, on the other hand, stands to gain from easy comparisons. The sector had a 29 percent decrease in earnings in the year-ago quarter, largely because of a legal settlement with mortgage bond investors that resulted in a big loss for Bank of America Corp (BAC.N).

"Year over year it looks good because (the sector) had such a bad quarter a year ago," said Greg Harrison, corporate earnings research analyst for Thomson Reuters.

However, the outlook for financials has weakened as well, especially following news last month that JPMorgan Chase & Co (JMP.N) suffered a credit derivatives trading loss of at least $2 billion.

REVENUE GROWTH SLOWING

U.S. companies' outlook for subsequent quarters has also deteriorated.

For the third quarter, S&P earnings are expected to rise just 4.7 percent, down from a January estimate of 6.6 percent, Thomson Reuters data showed.

Revenue growth is also slowing - for the S&P 500 it was only 5 percent for the first quarter, down from the 9.7 percent average of the previous four quarters. It is expected to slow to 2.5 percent in the second quarter, the data shows.

Also, negative-to-positive earnings forecasts given by companies for the second quarter - at about 3.4 to 1 - is the worst since the fourth quarter of 2008, Thomson Reuters data showed.

In the bigger corporate universe, the trend is the same. For the S&P 1500 over the past four weeks, analysts have raised forecasts for 424 companies and lowered them for 598, according to Bespoke Investment Group.

Some equities analysts remain upbeat about the earnings outlook, however, and say estimates may have fallen too much, opening up the possibility for the results to be better than expectations.

That happened in the first quarter when 67 percent of S&P 500 companies beat analyst earnings estimates, above the long-term average of 62 percent. First-quarter earnings growth was 8.1 percent, but just before earnings started, it was expected to be just 3.2 percent.

"Analysts over react to negative news always and the macro noise is fairly loud. My gut feeling is that earnings continue to surprise" on the upside, said Mike Jackson, founder of Denver-based investment firm T3 Equity Labs.

A lot may depend on whether news out of Europe continues to be gloomy.

Accelerating capital flight from Spain, which is resisting pressure to seek international assistance for its troubled banks, and a repeat general election in Greece on June 17, which might bring the country closer to leaving the euro area, both have the potential to destabilize markets further. That in turn could undermine corporate and consumer confidence.

(Reporting By Caroline Valetkevitch; editing by Martin Howell and Andre Grenon)

• A Permanent Economic Emergency