* Energy shares weakest of the day, utilities up
* Spanish, Italian yields rise on euro zone concerns
* European Commission calls for banking union
* U.S. shares of Research in Motion tumble
* Indexes off: Dow 1.1 pct, S&P 1.2 pct, Nasdaq 1.2 pct
By Ryan Vlastelica
NEW YORK, May 30 (Reuters) - U.S. stocks fell 1 percent on Wednesday as spiraling fears about the euro zone prompted investors to sell sectors tied to economic growth.
"We're being held hostage by Europe, by the increasing tensions in Spain," said John Kattar, chief investment officer at Eastern Investment Advisors in Boston, which manages $1.7 billion. "We're back to a risk-off mode, with cyclical sectors getting hit really hard. For the moment this seems to be the dominant trend."
Of the 10 S&P 500 sectors, only utilities were in positive territory, with the defensive group rising 0.1 percent. The biggest decliners on the day were energy, which tumbled 2.6 percent alongside a drop in crude oil prices, and consumer discretionary stocks, off 1.7 percent.
Europe's fiscal woes sent the yield on the safe-haven 10-year U.S. Treasury note to the lowest in 60 years and the euro to its lowest level in 23 months against the dollar. U.S. equities have been closely tethered to the currency's fortunes, with a 50-day correlation between the euro and the S&P 500 index at 0.91.
Yields on 10-year Spanish bonds moved closer to the 7 percent level, a point at which other nations in the bloc were forced to seek a bailout.
Spain is expected to issue new bonds shortly in an effort to fund its troubled banks despite the increased borrowing costs.
Adding to the concern, Italian 10-year yields topped 6 percent for the first time since January at a bond sale, raising concerns the region is vulnerable to a contagion. European shares dropped 1.7 percent.
The CBOE Volatility index jumped more than 11 percent, the biggest spike for the "fear index" since mid-April.
The PHLX oil service sector dropped 3.4 percent while crude fell 3.2 percent. Halliburton dropped 3.7 percent to $30.82.
There was momentary cause for optimism earlier in the day after the European Commission outlined a strategy to stabilize its banking system and boost growth, but that was dashed by the latest voting polls from Greece, which showed more support for the leftist SYRIZA party. Many analysts view next month's national parliamentary election as a major factor in whether Greece stays in the euro zone.
The Dow Jones industrial average was down 136.99 points, or 1.09 percent, at 12,443.70. The Standard & Poor's 500 Index was down 15.94 points, or 1.20 percent, at 1,316.48. The Nasdaq Composite Index was down 34.30 points, or 1.19 percent, at 2,836.69.
U.S. economic data showed contracts to purchase previously owned U.S. homes unexpectedly fell 5.5 percent in April to a four-month low, dealing a blow to more recent optimism the housing sector may have hit a bottom.
U.S. shares of Research In Motion Ltd tumbled 8.5 percent to $10.27 as the biggest percentage decliner on the Nasdaq 100 index. The company hired bankers for a far-reaching strategic review and to look for partnerships as the BlackBerry maker warned it would likely report a shock fiscal first-quarter operating loss.
Apple Inc slipped 0.2 percent to $570.81 after Chief Executive Tim Cook, speaking at the All Things Digital conference said technology for televisions was of "intense interest" but stressed the company's efforts would unfold gradually.
Macy's Inc reported better than expected May same-store sales on Wednesday, helped by its growing e-commerce business. Shares slipped 1.7 percent to $38.34.
Pep Boys-Manny, Moe & Jack plunged 21 percent to $8.73 after the automotive parts and service chain said the sale of the company to private equity firm Gores Group has been called off.