U.S. stocks fell on Tuesday as rising Italian bond yields kept alive worries that the euro zone's debt troubles will spread.

Banks were among the biggest drags on the market, with the S&P financial index down 0.5 percent.

Italy's prime minister-designate raced to assemble a new government so he could speed up reforms and reverse a collapse in market confidence. The yield on Italy's 10-year benchmark bonds leaped above 7 percent, pushing government borrowing costs to a level widely seen as unsustainable.

Cushioning losses, U.S. data offered more hope that the U.S. economy would be able to avoid another recession. Retail sales were stronger-than-expected in October while activity in the New York manufacturing sector rose in November, ending five straight months of contraction.

The economic numbers in the U.S. have improved (but) everything in Europe is kind of a matter of uncertainty, and the markets never like uncertainty, said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management in Champaign, Illinois.

The Dow Jones industrial average was down 71.55 points, or 0.59 percent, at 12,007.43. The Standard & Poor's 500 Index was down 6.71 points, or 0.54 percent, at 1,245.07. The Nasdaq Composite Index was down 11.25 points, or 0.42 percent, at 2,645.97.

Home Depot Inc raised its fiscal-year outlook for the third time in six months. Its shares edged down 0.4 percent to $38.08.

When Italian bond yields rose above 7 percent last week, the S&P 500 fell nearly 4 percent in one day. U.S. equities trading has been marked by heightened volatility recently as investors fret about the euro-zone debt crisis.

In other earnings reports, Wal-Mart Stores Inc's quarterly profit missed expectations as the economy continues to weigh on customers in the U.S., its largest division. Shares of the world's largest retailer dropped 2.6 percent to $57.33.

(Reporting by Caroline Valetkevitch; additional reporting by Edward Krudy; Editing by Kenneth Barry)