Stocks Fall as Greece Struggles to Form Government [VIDEO]

A wave of political uncertainty in Europe spread through financial markets Tuesday, pushing U.S. stocks sharply lower.

Major U.S. and European indexes sank as newly-elected Greek politicians appeared unable to form a coalition government. The Dow Jones industrial average fell 149 points in midday trading.

Greece's debate over austerity policies attached to its international bailouts turned combative, with one leading politician calling on others to reverse their support for the multibillion-euro package.

"There is no way we will sneak back in again what the Greek people threw out" in the election, said Alexis Tsipras, head of a leftist group that is trying to form a governing majority by joining with other parties. The conservative party that got the most votes already said it was unable to form a government.

Greek voters on Sunday rejected parties that imposed deep spending cuts demanded by Greece's rescue-lenders. The cuts to pensions and social programs are deepening Greece's crushing recession. Without economic growth, voters fear Greece will be unable to repay the bailouts.

Greek voters made that point by electing a slew of splinter parties to parliament, challenging their leaders' ability to form a majority coalition that can govern effectively.

As another round of elections in Greece appeared more likely, uncertainty gripped European markets. Greek stocks closed down 3.6 percent, bringing that market's two-day decline to 10 percent.

Other markets also dove. France's benchmark index closed down 2.8 percent, Italy's 2.4 percent and Germany's 1.9 percent. Traders dumped risky assets and those seen as benefiting from economic growth. The euro fell below $1.30, near a five-month low reached as Sunday's election results were announced. Oil continued its week-long slide.

The selling boosted demand for safe investments such as U.S. Treasurys. That pushed the yield on the 10-year Treasury note down to 1.84 percent from 1.88 percent late Monday.

"You're looking at selling across the board to raise cash," said Quincy Krosby, market strategist at the insurance company Prudential Financial. "If there were confidence in global growth, you would see that Treasury yield move higher." Higher Treasury yields reflect lower demand for the investments.

The Dow fell 149 points to 12,859 as of noon EDT. All 30 stocks that make up the Dow lost ground. Eighteen of them fell by a percentage point or more. If the Dow closes lower, it will be the average's fifth straight session of losses.

The Standard & Poor's 500 index dropped 17 points to 1,352. The Nasdaq composite average lost 40 to 2,917. Markets have been buffeted for three years by shifting perceptions about the gravity of the European debt crisis. At times, many feared a messy string of defaults would set off a global credit crunch.

To sooth bond investors and prevent borrowing costs from rising, political leaders in indebted nations agreed to spending cuts that worsened living standards for many of their citizens. They slashed pensions and government jobs, raised retirement ages and eliminated social programs.

International lenders and leaders of Germany, Europe's economic engine, argued that the cuts were the only way to prevent more bailouts.

Yet opponents of strict austerity say Europe will be unable to emerge from its recession unless governments spend more to boost demand in the economy.

French voters on Sunday elected a new president who has spoken out against austerity and promised to cut France's debt load more slowly. Stocks in France fell sharply as many doubted if the new Socialist leader can balance the two priorities without upsetting bond investors or voters.

On Monday, stocks had recovered from early losses as traders' knee-jerk reactions to the news from Europe faded away. That sense of relief had evaporated by early Tuesday as traders focused on the disarray in Greece.

Some corporate news that moved stocks:

-- Burger chain Wendy's fell 5 percent after it cut its forecast and said its first-quarter profit missed Wall Street analysts' expectations.

-- Watchmaker Fossil plunged 37 percent after saying weak sales in Europe caused its first-quarter revenue to fall far short of expectations. The company also lowered its 2012 earnings forecast.

-- Casino operator Wynn Resorts reported a disappointing drop in first-quarter earnings, sending its stock down 5 percent.

(Copyright 2012 by The Associated Press. All Rights Reserved.)