Stocks ended lower on Tuesday after political developments in Greece fanned concerns about Europe's fiscal health, but a late rally helped indexes cut losses to close well above lows.

Stocks spent most of the session sharply lower, with selling following declines in European markets.

Fears that Greece will reject an existing international bailout and potentially leave the euro prompted the selling across markets.

The S&P 500 fell through support at 1,350 to reach levels not seen since early March, but buyers emerged to support stocks.

"A lot of people have been looking at 1,350 as the short-term correction level, a level that the buy-the-dip crowd was hoping to get. This doesn't mean the market is not focusing on Europe," said James Dailey, who manages US$215 million (S$270 million) at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania.

Sectors sensitive to the economy floundered, with the S&P consumer discretionary sector .GSPD falling 1.3 per cent.

Investors moved toward safety plays, with utilities .GSPU rising 0.2 per cent and telecommunications .GSPL falling just 0.2 per cent.

The day's decline in stocks was part of a broad run to safety. Yields on German debt hit a record low while oil fell for a fifth straight day.

Leftist leader Alexis Tsipras began efforts to form a Greek government by renouncing the terms of an international bailout and threatening to nationalize banks.

The weekend's elections in France and Greece herald a new era of opposition to government austerity and add to concern about the strength of economic demand in the United States and China.

Market losses mirrored trading in Europe where the FTSEurofirst closed down 1.7 per cent.

French and UK stocks as measured by the CAC 40 and the FTSE 100 turned negative for the year.

The Dow Jones industrial average was down 76.44 points, or 0.59 per cent, at 12,932.09. The Standard & Poor's 500 Index was down 5.86 points, or 0.43 per cent, at 1,363.72. The Nasdaq Composite Index was down 11.49 points, or 0.39 per cent, at 2,946.27.

The threat of a Franco-German split over policies to tackle the region's debt crisis loomed after anti-austerity Socialist Francois Hollande was elected French president.

"This is dragging the situation out even longer and makes it less likely that the progress that has already been made will continue," said Mark Foster, who helps manage US$500 million at Kirr Marbach & Co in Columbus, Indiana.

While Foster said the weakness has created some bargains, "a lot of major US companies have a lot of exposure to Europe and we may continue seeing that weakness show up here."

Dow component McDonald's Corp (MCD.N) fell 2.1 per cent to US$93.55 after April same-store sales missed expectations.

With 434 of S&P 500 companies reporting results as of Tuesday morning, 66.8 per cent exceeded estimates, according to Thomson Reuters data. At the start of the earnings season, more than 80 per cent had beaten expectations.

Fossil Inc (FOSL.O) tumbled 38 per cent to US$78.52. The fashion accessories maker slashed its full-year outlook on weakness in Europe.

Electronic Arts Inc (EA.O) dropped 4.3 per cent to $14.48 a day after forecasting revenue below estimates.

Volume was 7.72 billion shares on the New York Stock Exchange, the Nasdaq and the NYSE Amex, above the daily average of around 6.76 billion.

On the New York Stock Exchange, decliners outnumbered advancers by a ratio of about 3 to 2. On the Nasdaq, about 13 stocks fell for every 11 that rose.