By Rodrigo Campos

NEW YORK (Reuters) – U.S. stocks tumbled on Wednesday as surging bond yields in Spain and Italy ratcheted up tensions in financial markets about Europe’s ability to solve its growing debt crisis.

Angst over Europe drove investors away from risky assets and into safe havens. U.S. Treasury benchmark yields fell to their lowest in at least 60 years, prices for crude fell more than 3 percent and the euro dropped below $1.24 to a 23-month low.

The S&P 500 has fallen nearly 6 percent in May, heading for its worst monthly performance since September as traders focused on Europe. However, U.S. data later in the week, including first-quarter gross domestic product and monthly payrolls, could delink Wall Street from overseas headlines.

Yields rose sharply at an Italian sale of five- and 10-year debt, and investors worried about Spain’s plans to raise new funds to shore up its banks even as borrowing costs rose there.

“You’re seeing the deterioration in Spain gain magnitude and that is worrisome because it involves a larger bailout (than Greece’s) and far more capital to alleviate banking problems,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

“Traders and long-term investors believe Europeans are working on solutions. But the ultimate question is will capital markets give them the time before a liquidity issue becomes a solvency issue.”

Adding to worries was Greece’s upcoming election, which could determine if the country will stay or not in the euro zone.

More than six issues fell on the New York Stock Exchange for every one that rose. The CBOE volatility index, a gauge of market anxiety, jumped 14.8 percent, its largest daily gain in almost three months.

The Dow Jones industrial average lost 160.83 points, or 1.28 percent, to 12,419.86. The S&P 500 Index dropped 19.10 points, or 1.43 percent, to 1,313.32. The Nasdaq Composite fell 33.63 points, or 1.17 percent, to 2,837.36.

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