Wall Street falls on Italy political turmoil; S&P, Dow Jones down over 1%

The S&P 500 and the Dow Jones Industrial Average fell more than 1 per cent on Tuesday as political turmoil in Italy sparked concerns about the stability of the euro zone.

Italy has been unable to assemble a coalition government since inconclusive elections in March, which saw the rise of anti-establishment parties that support leaving the euro. The most recent nominee for prime minister failed to secure support from the country's major political parties.

The political crisis in Rome, and the threat to the euro project it represents, triggered a rush to traditional safe havens like US debt, pulling down US 10-year bond yields and in turn spurring losses for US banks.

The market's main measure of short-term volatility, the CBOE Volatility index spiked to its highest level since April 25.

"The direct connection between the Italian government and the S&P 500 is tenuous, but it indirectly reminds people of geopolitical uncertainty," said Ed Keon, chief investment officer of QMA in Newark, New Jersey.

The Dow Jones Industrial Average fell 376.91 points, or 1.52 percent, to 24,376.18, the S&P 500  lost 30.88 points, or 1.13 percent, to 2,690.45 and the Nasdaq Composite dropped 36.31 points, or 0.49 percent, to 7,397.54.