NEW YORK — Europe’s latest political impasse cast a gloom over financial markets Tuesday. The euro plunged, and the Dow Jones industrial average extended a slide that has wiped out nearly 5 percent of its value in two weeks.
The biggest action of the day came shortly before U.S. markets opened, when a Greek party leader announced that talks to build a coalition government had failed. The euro and major European stock markets turned sharply lower and stayed there the rest of the day.
Newly elected political leaders in Greece disagree about whether to accept more international bailouts and continue with painful spending cuts. If Greece exits the euro currency, it could rattle financial markets around the world.
“It’s fear of European drama,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management. “It seems obvious that leaving the euro would be a disaster for Greece and very costly to its economy. Yet they seem to be on a path where that could happen. We’ve had some good U.S. economic data, but people are afraid to hold equities. It’s extremely frustrating.”
In the U.S., stocks opened mixed and then staged a weak midmorning rally after word that confidence among U.S. builders rose to a five-year high in May. Homebuilders gained: Hovnanian Enterprises surged 10 percent, Lennar 3 percent and PulteGroup 2 percent.
The Dow and other stock indexes meandered between gains and losses for much of the day, then turned decisively lower in the last hour of trading. The Dow wound up with a loss of 63.35 points, or 0.5 percent, to close at 12,632.00. Losses by most of its components were offset by a 1.3 percent gain for JPMorgan Chase.
The Dow has lost 647 points, or 4.9 percent, since May 1, when it hit a four-year high of 13,279.32. In that time, it has fallen every day but one. The Dow is on track for its first monthly decline since September, when it fell 6 percent.
The Standard & Poor’s 500 finished down 7.69 points, or 0.6 percent, at 1,330.66. The Nasdaq composite fell 8.82, or 0.3 percent, to 2,893.76.
The euro fell as low as $1.2720, a four-month low against the dollar, after Greek socialist leader Evangelos Venizelos declared that attempts to form a governing coalition there had failed and new elections will be held next month.
Pacific Investment Management, manager of the world’s largest bond fund, sees the most likely outcome as the 17-nation eurozone evolving into a smaller union centered on France, Germany, Italy and Spain, said Pimco chief executive Mohamed El-Erian.
“The status quo is no longer an option for Europe over the three- to five-year horizon,” El-Erian wrote in a report outlining the Newport Beach, Calif.-based company’s medium-term economic outlook.
