US STOCKS-Wall St drops, S&P on track for worst day since April

* Investors fret over Argentina default fallout, Russia tensions

* Exxon, Whole Foods both fall after results

* Labor costs post largest gain in more than 5-1/2 years

* Indexes down: Dow 1.5 pct, S&P 1.6 pct, Nasdaq 1.8 pct (Updates to afternoon)

By Caroline Valetkevitch

NEW YORK, July 31 (Reuters) - U.S. stocks fell more than 1 percent on Thursday, with the S&P 500 on track for its worst daily decline since April and first monthly drop since January, as concerns mounted over the strength of overseas economies and ongoing tensions with Russia.

The benchmark index moved solidly under its 50-day moving average, a level it has not closed below since April 15. The moving average is viewed as a sign of short-term momentum, and selling accelerated after the level was breached.

All 10 macro S&P 500 sectors were down on the day, with energy among those leading declines with a drop of 1.8 percent.

The CBOE Volatility index jumped 23.3 percent to 16.43, its highest level since April, though well under its historical average of 20.

"Technically, the market has looked very weak," said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston. "The number of stocks in up trends has been falling so technically the market has reported what investors are feeling," which is worried about the Fed and also "international events."

Argentina defaulted for the second time in 12 years. Investors had hoped for a midnight deal with holdout creditors, but the plan fell through. Even a short default will raise companies' borrowing costs, add to pressure on the peso, drain dwindling foreign reserves and fuel one of the world's highest inflation rates.

U.S. labor costs recorded their biggest gain in more than 5-1/2 years in the second quarter and a gauge of trends in the jobs market fell to an eight-year low last week.

The Dow Jones industrial average fell 249.34 points or 1.48 percent, to 16,631.02, the S&P 500 lost 31.36 points or 1.59 percent, to 1,938.71 and the Nasdaq Composite dropped 79.52 points or 1.78 percent, to 4,383.38.

Russian news agencies reported that Russia banned soy imports from Ukraine and may restrict Greek fruit and U.S. poultry in what could be responses to new Western sanctions.

Earnings disappointments added to the negative tone. Dow component Exxon Mobil Corp's second-quarter earnings beat expectations, but shares fell 3.3 percent to $99.83.

Late Wednesday, Whole Foods Markets Inc cut its 2014 forecasts for a fourth time. Shares (Frankfurt: DI6.F - news) fell 2.4 percent at $38.17.

Portugal's Banco Espirito Santo slumped about 40 percent to an all-time low as its hopes of raising capital without state aid suffered a major blow after massive losses. (Editing by Bernadette Baum and Nick Zieminski)