By COLLEEN BARRY, AP Business Writer

MILAN -- European and U.S. markets sank Tuesday as investors worried whether Greece, after an inconclusive election, would be able to form a new government to save it from financial disaster.

After Greek conservatives failed to create a government, the baton passed to the Radical Left Coalition leader Alexis Tsipras. He is not expected to be able to form a governing coalition either, which makes another general election increasingly likely.

Greek shares have borne the brunt of the concerns. After sliding nearly 7% on Monday, Athens' main stock exchange was down a further 5.2% near the end of trading Tuesday.

"Greece's troubles will worsen if the job of forming a new government drags out and forces another round of elections," said Craig Erlam, an analyst at Alpari. Erlam warned that Greece could run out of money in June without a government to negotiate the next tranche of its financial bailout.

And if Greece can't stay solvent, it risks falling out of the eurozone, with potential knock-on effects throughout the global economy.

Against that backdrop, European shares failed to sustain a recovery from the previous day. Britain's FTSE 100 fell 0.3% to 5,640. Germany's DAX slipped 0.7% to 6,524 and France's CAC-40 dropped 1.6% to 3,163.

The Dow Jones industrial average was down 65 points at 12,944 shortly after trading began. The S&P 500 was down 7 at 1,362.

Markets were thrown into a tailspin Monday after weekend elections in France and Greece led to a sharp shift in the political landscape with the focus shifting away from austerity. In France, President Nicolas Sarkozy was thrown out of office by voters opposed to his belt-tightening program and replaced by Socialist Francois Hollande, who wants growth to become a more central plank of Europe's debt crisis resolution.

"Although the French election result has now been deemed to not be a threat, Greece remains a significant concern and is likely to be a source of volatility through the week," said Stan Shamu of IG Markets in Melbourne.

In Greece, voters punished the two parties that have overseen the country's harsh austerity measures and left no party with enough votes to form a government.

Earlier, Asian shares posted modest gains. Japan's Nikkei 225 index edged up 0.7% to close at 9,181.65, a day after closing at its lowest level in three months.

In other Asian markets, South Korea's Kospi added 0.5% to 1,967.01. Australia's S&P/ASX 200 rose 0.3% to 4,314.30.

Benchmark oil for June delivery was down 88 cents to $97.06 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 55 cents to settle at $97.94 in New York on Monday.

In currencies, the euro fell to $1.3001 from $1.3050 late Monday in New York. The dollar fell to 79.82 yen from 79.94 yen.


Pamela Sampson in Bangkok contributed to the article.