* U.S. Treasury yields dip due to safety buying
* Bank stocks decline in tandem with bond yields
* U.S. crude falls on expected Saudi and Russian output boost
* Indexes down: Dow 0.79 pct, S&P 0.66 pct, Nasdaq 0.23 pct (Updates to open)
By Medha Singh
May 29 (Reuters) - The S&P 500 and Dow Jones Industrial Average touched near three-week lows on Tuesday as investors switched cash into perceived safe havens of global financial markets due to a deepening political crisis in Italy.
European financial markets saw a second day of heavy selling due to fear that repeat elections - which now seem inevitable in the euro zone's third largest economy - may become a de facto referendum on Italian membership of the currency bloc.
On Monday, Italy's president set the country on a path to fresh elections by appointing a former International Monetary Fund official as interim prime minister with the task of planning for snap polls and passing the next budget.
Prices of U.S. 10-year Treasury bonds, traditionally a safe haven for capital at times of global political stress, rose and yield fell to their lowest level since mid-April at 2.8767 percent.
That pushed down shares of major U.S. banks. Citigroup , JPMorgan and Goldman Sachs fell between 1.7 percent and 2.4 percent. Treasury yields can influence bank shares as higher lending rates tend to boost bank profits.
"The kick-off to a shortened trading week is looking ugly as Italy's political woes weigh heavily on the global markets," noted Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
"A crisis of confidence for the euro seems almost inevitable, which is fortifying the greenback and sending bond yields lower as the safety trade overrules."
At 9:54 a.m. EDT the Dow Jones Industrial Average was down 194.80 points, or 0.79 percent, at 24,558.29, the S&P 500 was down 17.98 points, or 0.66 percent, at 2,703.35 and the Nasdaq Composite was down 16.78 points, or 0.23 percent, at 7,417.07.
The S&P 500 opened below its 100-day moving average, a key technical level. All 11 of the major S&P sectors were in the red.
Shares of energy companies were led lower by a 1.4 percent drop in U.S. crude futures on expectations that Saudi Arabia and Russia could pump more crude to compensate for a potential supply shortfall.
Exxon Mobil fell 0.4 percent, while Chevron was down 0.3 percent. Halliburton slipped 1.2 percent.
U.S. President Donald Trump said on Tuesday meetings were being held to set up a summit with North Korea and confirmed that a top North Korean official was en route to New York. The move is the latest indication that an on-again-off-again summit with Trump may go ahead.
St. Louis Fed President James Bullard said the Federal Reserve will find it difficult to raise interest rates beyond the settings of its Japanese and European counterparts, which are still pursuing accommodative policy.
Among stocks, shares of Universal Display Corp jumped 12.4 percent after Apple said on Monday it would use OLED screens in all three new iPhone models planned for next year.
NXP Semiconductors NV rose 2.3 percent on a report on Monday that China is ready to approve the Qualcomm NXP deal if the United States lifts ban on ZTE Corp.
Declining issues outnumbered advancers for a 2.36-to-1 ratio on the NYSE. Declining issues outnumbered advancers for a 1.96-to-1 ratio on the Nasdaq.
The S&P index recorded two new 52-week highs and three new lows, while the Nasdaq recorded 24 new highs and 19 new lows. (Reporting by Medha Singh in Bengaluru; Editing by Arun Koyyur)