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Wall Street struggled after Greece called for a new election following politicians' failure to form a government, even as American data provided good news on the US economy. The euro sank to a four-month low against the greenback.
While the date for the next Greek vote hasn't been announced, it appears likely to take place early next month. At this stage, it appears the leftist SYRIZA party, which is vehemently opposed to the terms of EU/IMF bailout, would win the largest number of seats.
Europe's Stoxx 600 Index closed with a 0.7 per cent drop for the day, while the euro shed 0.7 per cent to US$1.2739 at 2.19pm New York time.
"The Greeks and Germans seem to be playing an enormous game of chicken. It is unsettling to the market that those who would rather renegotiate the existing agreement seem to be gaining strength after the election," John Manley, chief equity strategist at Wells Fargo Funds Management in New York, told Reuters.
In late trading in New York, losses were accelerating. The Dow Jones Industrial Average fell 0.65 per cent, the Standard & Poor's shed 0.54 per cent and the Nasdaq Composite Index dropped 0.30 per cent.
Economic data provided reason to remain optimistic. US retail sales eked out a 0.1 per cent advance in April, the smallest increase since December, though the data provided signs of strength too.
In addition, the New York Federal Reserve's Empire State general business conditions index climbed to 17.09 in May, about double economists' expectations, while the National Association of Home Builders/Wells Fargo Housing Market index rose to a five-year high of 29 this month.
"The US economic data suggest growth is on track," Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, told Bloomberg News. "Yet events affecting the health of the European financial markets can still have an impact on global growth. The politics in Greece is very frustrating for the market."
Among other bright spots in the US market was Facebook, which increased the price range on its initial public offering. That might value the company at more than US$100 billion. The company lifted the target range to between US$34 and US$38 per share because of strong demand, from US$28 to US$35, according to a filing with the US Securities and Exchange Commission on Tuesday.
Final pricing is expected on Thursday with trading set to begin on Friday.
The timing of Facebook's offering, with markets pulling back, makes some market watchers wary, including Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland.
"They (Facebook) get more money upfront if they can make it go, but if the enthusiasm is weak out of the gate, it makes it that much more difficult for the company going forward," McCain told Bloomberg. "You would think they would be a little more cautious."
Amazon shares rose after Credit Suisse upgraded the stock to "outperform" and raised its price target to US$270 from US$190.
Home Depot shares dropped 2 per cent after the home-improvement retailer predicted sales this year will slow from the first quarter.