U.S. stocks sank Tuesday amid political turmoil in Italy that sent the euro tumbling and ongoing difficult trade talks with China. Bank stocks led the decline.

The Dow Jones industrial average fell 391.64 points — or 1.58 percent — to finish at 24,361.45 amid losses in Goldman Sachs, Boeing, and J.P. Morgan Chase. At its lows, the index lost more than 500 points, or 2 percent.

The fell 1.16 percent to close at 2,689.86, while the Nasdaq composite fell 0.5 percent to finish at 7,396.59.

Tuesday's losses marked the third straight trading session of negative numbers for the Dow and S&P 500, both of which suffered their worst day on a percentage basis since April 24.

Stocks extended their losses throughout the day as European exchanges closed and the euro fell further against the dollar.

Concerns about a global credit blight and anemic interest rates appeared to weigh on U.S. financial stocks Tuesday, sending shares of the nation's largest banks tumbling. Goldman Sachs, J.P. Morgan, Citigroup, Morgan Stanley and Bank of America all lost more than 3 percent.

The Financial Select Sector SPDR (XLF) exchange-traded fund fell 3.34 percent, below its 200-day moving average.

Banking investors could be nervous that a decline in global credit could lead to collateral damage to holders of international bonds, though widespread strengthening in global government debt Tuesday also dampened the banking outlook.

"The more recent bout of political turmoil spanning across a number of member countries coupled with a clear loss of economic momentum in the region has investors questioning the sustainability of the recovery and the future of the bloc," Lindsey Piegza, chief economist at Stifel Nicolaus, wrote in an email to CNBC.

The Cboe Volatility Index (VIX) — a measure of market anxiety — rose to highs above 18. U.S. stock markets were closed Monday for Memorial Day.

The risk-off attitude fueled demand for safer asset classes, including U.S. Treasurys. The rate on the U.S. 10-year note fell to 2.77 percent Tuesday, down from highs above 3.1 percent in recent weeks.

The Stoxx Europe 600 fell 1.4 percent, weighed down by a 2.6 percent drop in Italy's FTSE MIB and a 2.5 percent decline in Spain's IBEX 35. In Asia, stocks finished the session in the red, as the euro zone's political turmoil depressed markets worldwide.

The euro fell below $1.16 — its lowest level this year against the greenback — as Italian debt rates continued to rise. The Dollar Index, which pits the greenback against a basket of currencies, was up 0.68 percent Tuesday at 94.83.

Exacerbating banking sector woes was J.P. Morgan Co-president Daniel Pinto, who revealed Tuesday that trading revenue in the second quarter will probably be flat from a year ago.

"Overall, markets revenue as we see it today will be flat year on year," Co-president Daniel Pinto said Tuesday during a conference in New York. "The core activities will be up let's say mid single digits. Then we have a series of one-offs that overall take that back down to flat."

Morgan Stanley, meanwhile, clinched its worst day since June 2016, down 5.75 percent. The slide in the company's stock occurred after an executive cited more challenging business conditions in the second quarter for its wealth management division.

Over the weekend, Italy's president appointed former International Monetary Fund official Carlo Cottarelli as interim prime minister to form a new cabinet and restore political order within the country.

The euro zone's third-largest economy has been struggling to establish a stable government since inconclusive elections in March, with anti-establishment forces abandoning their effort to form a ruling coalition over the weekend.