GLOBAL MARKETS-Euro, stocks, oil slump as Greek crisis deepens
* Euro bounces back from dip below $1.30 but still down
* Brent, U.S. oil prices fall for fifth session
* Benchmark German yields hit record low
* Greek stock index hits near 20-year low
By Rodrigo Campos
NEW YORK, May 8 (Reuters) - The euro, oil and stocks fell on Tuesday as worries intensified that Greece will reject the bailout that saved it from a chaotic bankruptcy as a Leftist politician sought to form a government two days after elections.
Voters in both Greece and France in weekend elections soundly rejected the harsh austerity measures that markets have seen as the way out of Europe's debt crisis, heightening the uncertainty of the path ahead for the euro zone.
Alexis Tsipras, the leader of the Greece's Left Coalition party, began efforts to form a government by renouncing terms tied to the country's receipt of bailout funds and threatening to nationalize banks.
The head of a centrist conservative party, which won the most votes Sunday, said he would not back a minority government that rejected the bailout, making repeat elections in a few weeks increasingly likely.
"This really just prolongs the possibility of recovery because now there is going to be a political debate about what's the best way to proceed," said David Joy, chief market strategist at Ameriprise Financial in Boston, speaking of recent elections in the bloc.
If Greece does not stick to the aid package terms, it could run out of money as soon as next month, officials estimate.
A broad measure of Greek stocks dropped 3.6 percent to close at its lowest level in almost 20 years, and France's CAC 40 lost 2.8 percent.
The uncertainty in Europe put a bid under safe-haven assets, sending benchmark German yields to a record low of 1.533 percent. The increased aversion to risk also underpinned demand at a sale of Dutch and Austrian bonds.
The benchmark 10-year U.S. Treasury note was up 12/32 in price, with the yield at 1.8297 percent. Yields briefly dipped below 1.82 percent, their lowest level since early February, but the slide was seen as temporary.
"Unless Europe deteriorates further from here these yields are going to prove to be unsustainably low," said Jim Kochan, chief fixed-income strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. Wells Fargo Advantage Funds has $208 billion in assets under management.
COMMODITIES SLIDE WITH EURO, BUT OFF LOWS
Oil prices fell for a fifth straight session, marking the largest five-day decline since October. The prospect of weaker growth on both sides of the Atlantic at a time of ample supply from major oil producers continued to pressure prices, though future prices settled far off their session lows.
Brent crude settled down 0.4 percent at $112.73, and U.S. crude fell 1 percent to $97.01. Both had earlier fallen by more than 2 percent.
The euro fell for a seventh straight session, down 0.2 percent at $1.3239, off the day's low of $1.2981. The single currency traded below the key technical level of $1.30 for a second straight session.
"Today's euro weakness is overwhelmingly tied to Greece's difficulty putting together a government," said Daniel Hwang, senior currency strategist at Forex.com in New York.
"It is an overall risk-off day, however, and the euro will likely remain under pressure due to all the political uncertainty."
Gold traded below $1,600 an ounce for the first time in four months, continuing its close correlation with the euro. Spot gold was recently down 1.8 percent at $1,607.70.
In afternoon trading in New York, the Dow Jones industrial average dropped 95.44 points, or 0.73 percent, to 12,913.09. The S&P 500 Index fell 8.39 points, or 0.61 percent, to 1,361.19. The Nasdaq Composite lost 16.62 points, or 0.56 percent, to 2,941.14.
The pan-European FTSEurofirst 300 closed down 1.66 percent and the blue-chip Euro STOXX 50 index slid 2.06 percent. Global stocks as measured by MSCI were down 1 percent.
"Greece is basically a zombie state right now," said Rick Fier, director of trading at Conifer Securities in New York.
"If the euro zone is mired in recession for a while, that will put a crimp on (the U.S. economy) as we try to expand."
The political turmoil in Greece added to worries that France, where President-elect Francois Hollande has also opposed drastic spending cuts, could derail the German-led push for austerity in Europe and trigger a new phase of the bloc's debt crisis.
Italian benchmark yields rose 5 basis points to 5.63 percent while the Spanish benchmark added 10 basis points to 5.866 percent.
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