Stocks tumble on Greece uncertainty

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NEW YORK (CNNMoney) -- U.S. stocks sank Tuesday, although the major indexes closed off session lows, as Greece's uncertain political situation keeps investors on edge.

The Dow Jones industrial average (INDU) fell 76 points, or 0.6%, to 12,932. The S&P 500 (SPX) tumbled 6 points, or 0.4%, to 1,364. The Nasdaq (COMP) declined 11 points, or 0.4%, to 2,946.

The selling picked up steam during the morning, with the S&P 500 touching a 2-month low, as stocks in Europe fell sharply. But major indexes in the United Sates pared losses in the last hour of trading.

All eyes continue to be on Europe, after Greece's main center-right party failed to form a coalition government. Now, the left-wing coalition, which is opposed to austerity as the way to close Greece's debt gap, will have three days to form a government.

The latest development is feeding investors' fears that Greece might have to drop out of the eurozone.

"The political stalemate in Greece is casting a shadow over risk markets in general and equities in particular," said Nick Stamenkovic, investment strategist at RIA Capital Markets in Edinburgh. "Investors are questioning whether Greece will be a part of the single currency at the end of this year."

The Greek stock market fell 3.6%, adding to sharp losses in the previous session.

As various parties grapple with forming a coalition government in Greece, it's looking increasingly likely that new elections will need to be held, most likely in mid-June. That throws into question whether Greece will be forced to renegotiate its bailout funding.

Greek leftist leader Alexis Tsipras on Tuesday laid out the radical agenda he hopes to pursue if he becomes prime minister, including the cancellation of international loan agreements to Greece that forced the country into sharp budget cuts.

Meanwhile, European Union leaders are grappling with the need to boost economic growth during a time of austerity. Early Tuesday, European Council president Herman Van Rompuy set May 23 as the date for an unscheduled EU summit, announcing on his Twitter feed that it would be an "informal dinner."

In addition to the "re-circulating woes in Europe," investors were also rattled by weak sales numbers from McDonalds, said Peter Tuz, portfolio manager at Chase Investment Counsel in Charlottesville, Va.

"More uncertainty in Europe is not good for U.S. markets, nor is the weakness in consumer-oriented stocks," said Tuz.

U.S. stocks recovered from a shaky start Monday, following elections in France and Greece over the weekend.

World markets: European stocks fell sharply late in the day to end lower. Britain's FTSE 100 (UKX) was down 1.7%. The DAX (DAX) in Germany shed 1.9%. In France, the benchmark CAC 40 (CAC40) fell 3% one day after Socialist party leader Francois Hollande won the nation's presidential election.

In the bond market, investors bought €1.3 billion worth of short-term Greek government bills out of €2.6 billion offered. The yield was 4.69%, up from 4.55% at the last auction in April.

Asian markets ended mixed. The Shanghai Composite (SHCOMP) slid 0.1% and the Hang Seng (HSI) in Hong Kong lost 0.2%, while Japan's Nikkei (N225) rose 0.7%.

Companies: Shares of fashion accessories maker Fossil (FOSL) plunged after it reported first-quarter revenue that fell short of even the lowest forecasts.

Fast-food chain Wendy's (WEN) reported operating income of 1 cent a share, falling short of analysts' forecasts for a profit of 3 cents a share.

Shares for Electronic Arts (EA) slipped after the video-game maker cut its first-quarter outlook for the period ending in June.

The Government Accountability Office issued a report Tuesday that the U.S. Treasury may eventually turn a $15.1 billion profit on its bailout of insurer AIG (AIG, Fortune 500) when all final payments and asset sales are complete.

McDonald's Corp.'s (MCD, Fortune 500) same-store sales increased 3.3%, both globally and in the U.S. market. Analysts were expecting sales to grow 5%, according to Reuters. Sales rose 3.5% in Europe, but only 1.1% in the unit that includes Asia-Pacific, Middle East and Africa.

In other corporate news, shares of DirecTV (DTV, Fortune 500) slipped even as the broadcast satellite provider reported slightly better earnings and sales in line with forecasts.

Entertainment conglomerate and Dow component Walt Disney (DIS, Fortune 500) will report earnings after the close. The studio had a blockbuster weekend with "The Avengers," which broke records with box office sales of $200.3 million during opening weekend. Those sales will not be included in this report, while an estimated $200 million in losses on epic bomb "John Carter" will.

Currencies and commodities: The dollar gained strength against the euro and British pound, but fell versus the Japanese yen.

Oil for June delivery fell 93 cents to end at $97.01 a barrel.

Gold futures for June delivery dropped $34.60 to settle at $1,604.50 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury fell Tuesday, leaving the yield at 1.84%.