Stock indexes dropped 1 percent on Tuesday, hit by a sharp fall in oil prices and after Alcoa's lighter-than-expected revenue started the earnings season on a dour note.

Energy stocks were by far the worst performers, with the S&P Energy Index <.GSPE> losing 3.3 percent alongside oil prices. U.S. crude futures sank 3.2 percent to $106.40 per barrel while Brent crude lost 2.5 percent to $120.86. Dow component Chevron Corp dropped 3.5 percent to $103.99.

Goldman Sachs shook oil markets for a second day after it called for a fall of almost $20 in the price of Brent crude oil in coming months.

I don't think we're heading for a bear market, but we are getting a reality check, said Donald Selkin, chief market strategist at National Securities in New York, which has about $3 billion in assets under management.

The International Energy Agency also said high prices could curb oil demand. U.S. crude is up 16 percent since the start of the year.

Alcoa Inc slid 6.1 percent to $16.69 and was the Dow's biggest percentage loser a day after it reported revenue that missed forecasts, though its profit topped consensus expectations. The SPDR S&P Metals and Mining ETF fell 2.2 percent.

The profit did beat expectations, but people are looking for revenue growth this quarter, and the revenue here was disappointing, Selkin said. This could set the bar lower for other companies.

The Dow Jones industrial average <.DJI> was down 120.45 points, or 0.97 percent, at 12,260.66. The Standard & Poor's 500 Index <.SPX> was down 11.63 points, or 0.88 percent, at 1,312.83. The Nasdaq Composite Index <.IXIC> was down 27.31 points, or 0.99 percent, at 2,744.20.

Japan raised the severity of the Fukushima nuclear power plant accident to the highest level on the International Nuclear and Radiological Event Scale, putting it on par with the Chernobyl 1986 disaster. Dollar-denominated Nikkei future fell 1.5 percent.

Mining stocks fell as metals prices dipped on worries that Japan's massive earthquake and a nuclear crisis would weaken recovery prospects in the world's third-largest economy.

The S&P Materials Index <.GSPM> fell 1.3 percent while U.S.-traded shares of Rio Tinto fell 2.2 percent to $72.17. Freeport-McMoRan Copper & Gold Inc shed 3.3 percent to $53.63.

On the upside, Tibco Software Inc climbed 7.1 percent to $28.90 a day after Reuters reported that Hewlett-Packard Co had considered buying the business software maker to beef up its software business.

(Reporting by Ryan Vlastelica; Editing by Jan Paschal)

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