NEW YORK (Reuters) - A spiraling Italian political crisis provoked a global stock market sell-off on Tuesday, cut the euro to a 10-month low and spiked borrowing costs for the government in Rome.

Investors fear that repeat elections - which now seem likely in the euro zone’s third-largest economy as soon as July - may become a de-facto referendum on Italian membership of the currency bloc and the country’s role in the European Union.

Safe-haven U.S. Treasury bonds and German bunds rallied, as did the Japanese yen, the U.S. dollar and gold by midday in the U.S. trading day. Oil sank further from the near-four-year highs set earlier in the month. That all weighed on already embattled emerging markets.

The Dow Jones Industrial Average .DJI fell 391.64 points, or 1.58 percent, to 24,361.45, the S&P 500 .SPX lost 31.47 points, or 1.16 percent, to 2,689.86 and the Nasdaq Composite .IXIC dropped 37.26 points, or 0.5 percent, to 7,396.59.

“As part of the overall narrative of cautionary situations and risks that the market needs to worry about, this could potentially become cause for contagion,” said Wasif Latif, head of global multi-assets for USAA Asset Management Co.

“What once seemed like a synchronized global economic recovery is now a waning growth story.”

Italy seems likely to repeat elections soon after its prime minister-designate, Carlo Cottarelli, failed to secure support from major political parties for even a stop-gap government, sources told Reuters on Tuesday.

Italy has searched for a new government since inconclusive elections in March, and investors fear voters will choose leaders hoping to break with the continent’s austere fiscal policy approach and even the multinational euro currency that replaced the lira in 2002.

“As the slide continues, you ask where is the end,” said John Hardy, Saxo Bank’s head of foreign-exchange strategy.

FILE PHOTO: A picture illustration of Euro banknotes, April 25, 2014. REUTERS/Dado Ruvic/Illustration/File Photo

“If this continues for another couple of sessions, I think you will have to see some official response. A ‘whatever it takes’ kind of moment,” he said.

Facing a sovereign debt crisis, European Central Bank President Mario Draghi promised in a legendary 2012 speech to “whatever it takes” to keep the single currency intact.

POLITICS TAKE CENTER STAGE

Short-dated Italian bond yields IT2YT=RR - a sensitive gauge of political risk - soared 1.5 percentage points from Monday to their highest since 2013 in their biggest move in nearly 26 years. Tradeweb Markets LLC reported average trading volume in the debt is up by more than 60 percent in May compared to the month prior.

The euro fell against the Swiss franc, Japanese yen and U.S. dollar, nearing $1.15 EUR= and touching its lowest point since July.

Stocks in Milan .FTMIB slid 2.7 percent in their fifth straight day of losses. Bank shares there .FTIT8300 fell 4.7 percent, bruised by the sell-off in government bonds, a core part of bank portfolios.

Adding to the uncertainty in Europe, Spanish Prime Minister Mariano Rajoy will face a vote of confidence in his leadership on Friday.

Spain's bond-yield spread with Germany also went to its widest this year at nearly 1.35 percentage points ES10YT=RR and Madrid's IBEX bourse .IBEX closed down 2.5 percent. The pan-European FTSEurofirst 300 index .FTEU3 lost 1.3 percent.

Away from Europe, the focus was on the on-again, off-again U.S.-North Korean summit and on the U.S.-China trade relationship.

An aide to North Korean leader Kim Jong Un arrived in Singapore on Monday, Japanese public broadcaster NHK reported, and the White House said a “pre-advance” team was traveling to the city to meet the North Koreans.

The reports indicate that planning for the summit, initially scheduled for June 12, is moving ahead even though U.S. President Donald Trump called it off last week. A day later, Trump said he had reconsidered, and officials from both countries were meeting to work out details.

Asia flinched. Japan's Nikkei .N225 slipped 0.6 percent. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed 0.9 percent lower.

The United States also said on Tuesday that it would continue pursuing action on trade with China, days after Washington and Beijing announced a tentative solution to their dispute and suggested that tensions had cooled.

In the United States, volatility .VIX leapt and bank stocks .SPSY withered. Benchmark 10-year notes US10YT=RR last rose in price to yield 2.786 percent, from 2.935 percent late on Friday. Spot gold XAU= added 0.2 percent to $1,299.85 an ounce.

Emerging market stocks .MSCIEF lost 1.2 percent, marking a new low point for the year, under continued pressure from a rising U.S. dollar for countries that often borrow in that currency.

The greenback is poised to turn in its best monthly performance against a basket of trading partners' currencies .DXY since 2015.

Oil struggled under pressure from expectations that Saudi Arabia and Russia would pump more oil to counter potential supply shortfalls from Venezuela and Iran, even as U.S. output has surged in recent years.

Rising U.S. oil supplies have helped pushed the spread between Brent and U.S. crude CL-LCO1=R to nearly $9 a barrel, its widest since March 2015 because of the depressed price of U.S. crude compared with Brent. U.S. crude CLcv1 fell 1.56 percent to $66.82 per barrel and Brent LCOcv1 was at $75.50.