Political stalemate in Greece sinks Dow

A political stalemate in Greece rattled financial markets worldwide Monday, driving U.S. stocks lower.

The euro sank to a three-month low against the dollar and borrowing costs for Spain and Italy jumped as bond traders anticipated that financial stress could spread far beyond Greece. Investors dumped risky assets and plowed into the safety of the Treasury market, pushing yields to their lowest levels this year.

The Dow Jones industrial average dropped 125.25 points to close at 12,695.35. The Dow has lost more than half of its gains for the year in the past two weeks as worries resurface about Europe and the strength of the U.S. economy.

In Athens, talks between political parties to form a government dragged into a second week. The uncertainty has raised concerns that Greece could miss a debt payment and drop the euro currency. The worry is that if Greece leaves the currency union, bond traders may demand steeper borrowing rates from other troubled countries and push them deeper into debt.

The turmoil could spread to the United States through the banking system. "The large banks are globally connected," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.