The euro, oil and stocks fell on Tuesday as worries intensified that Greece could reject the bailout that saved it from a chaotic bankruptcy as new leadership sought to form a government two days after elections.
Voters in weekend polls in both Greece and France soundly rejected the harsh austerity measures that markets have seen as the way out of Europe's debt crisis, heightening the uncertainty of the path ahead for the euro zone.
Alexis Tsipras, the leader of Greece's Left Coalition party, began efforts to form a government by rejecting terms tied to the country's receipt of bailout funds and threatening to nationalise banks.
The head of a centrist conservative party, which won the most votes Sunday, said he would not back a minority government that renounced the bailout, making repeat elections in a few weeks increasingly likely.
"This really just prolongs the possibility of recovery because now there is going to be a political debate about what's the best way to proceed," said David Joy, chief market strategist at Ameriprise Financial in Boston, speaking of recent elections in the bloc.
If Greece does not stick to the aid package terms, it could run out of money as soon as next month, officials estimate.
A broad measure of Greek stocks dropped 3.6% to close at its lowest level in almost 20 years, and France's CAC 40 lost 2.8%.
US stocks closed lower, but far off their session lows.
The uncertainty in Europe put a bid under safe-haven assets, sending benchmark German yields to a record low of 1.533%. The increased aversion to risk also underpinned demand at a sale of Dutch and Austrian bonds.
The benchmark 10-year US Treasury note was up 8/32 in price, the yield at 1.8454%. Yields briefly dipped below 1.82%, their lowest since early February.
COMMODITIES SLIDE WITH EURO, BUT OFF LOWS
Oil prices fell for a fifth straight session, marking the largest five-day decline since October. The prospect of weaker growth on both sides of the Atlantic at a time of ample supply from major oil producers continued to pressure prices, though futures settled far off their session lows.
Brent crude settled down 0.4% at $112.73, and US crude fell 1% to $97.01. Both had earlier fallen more than 2%.
The euro fell for a seventh straight session, down 0.3% at $1.3010, off the day's low of $1.2981. The single currency traded below the key technical level of $1.30 for a second straight session.
"Today's euro weakness is overwhelmingly tied to Greece's difficulty putting together a government," said Daniel Hwang, senior currency strategist at Forex.com in New York.
"It is an overall risk-off day, however, and the euro will likely remain under pressure due to all the political uncertainty."
Gold traded below $1,600 an ounce for the first time in four months, continuing its close correlation with the euro. Spot gold was recently down 2% at $1,604.80.
At the closing bell in New York, the Dow Jones industrial average lost 76.44 points, or 0.59%, to 12,932.09. The S&P 500 Index fell 5.86 points, or 0.43%, to 1,363.72 and the Nasdaq Composite dropped 11.49 points, or 0.39%, to 2,946.27.
The pan-European FTSEurofirst 300 closed down 1.66% and the blue-chip Euro STOXX 50 index slid 2.06%. Global stocks as measured by MSCI were down 0.8%.
"Greece is basically a zombie state right now," said Rick Fier, director of trading at Conifer Securities in New York. "If the euro zone is mired in recession for a while, that will put a crimp on (the US economy) as we try to expand."
The political turmoil in Greece added to worries that France, where President-elect Francois Hollande has also opposed drastic spending cuts, could derail the German-led push for austerity in Europe and trigger a new phase of the bloc's debt crisis.
Italian benchmark yields rose 5 basis points to 5.63% while the Spanish benchmark added 10 basis points to 5.866%.
