* Bank stocks fall; gold prices, VIX shoot up
* Dollar drops to lowest level since November
* Dow, S&P below 50-day DMA for first time since April
* Target up on smaller drop in comparable sales
* Indexes down: Dow 1.12 pct, S&P 1.01 pct, Nasdaq 1.36 pct (Adds details, comments, updates prices)
By Yashaswini Swamynathan
May 17 (Reuters) - The S&P 500 and the Dow were headed for their worst day in more than eight months as reports of a leaked memo by former FBI chief James Comey spooked investors, raising questions about whether President Donald Trump tried to interfere with a federal investigation.
Trump asked Comey to end a probe into former National Security Adviser Michael Flynn's ties with Russia, according to the reports.
The news comes on the heels of a tumultuous week at the White House when Trump unexpectedly fired Comey and then disclosed classified information to Russia's foreign minister about a planned Islamic State operation.
The latest developments cast a shadow over Trump's proposed business-friendly policies such as tax cuts and simpler bank regulations, which have underpinned a record-setting rally on Wall Street.
"I think the biggest issue right now is what does this mean for the plan that we thought we were on," said Jeremy Bryan portfolio manager at Gradient Investments in Arden Hills, Minnesota. "Is it delayed or is it dead?"
Bank stocks, which outperformed in the post-election rally, were the worst hit. The S&P 500 financial sector tumbled more than 2 percent, led by losses in Bank of America and JPMorgan.
Goldman Sachs was the biggest drag on the Dow.
Both the Dow and the S&P 500 fell below their 50-day moving average for first time since late April.
At 10:46 a.m. ET (1446 GMT), the Dow Jones Industrial Average was down 234.47 points, or 1.12 percent, at 20,745.28, the S&P 500 was down 24.18 points, or 1.01 percent, at 2,376.49 and the Nasdaq Composite index was down 83.65 points, or 1.36 percent, at 6,086.22.
The dollar index sank on Wednesday, erasing all of the gains inspired by Trump's pro-growth stance after his November election victory. The euro hit its highest level since Nov. 7, while prices of gold hit a one-month high.
The VIX, Wall Street's "fear gauge", shot up to 12.8 points and was on track for its biggest one-day percentage increase since August.
"We're largely through the earnings season, so political uncertainty is probably going to be the largest source of risk in the next three to six months." Bryan said.
Nine of the 11 major S&P 500 sectors were lower.
Utilities and real estate sectors - preferred investment options in times of uncertainty due to their slow but predictable growth - were the only gainers.
Target was up 2.8 percent at $56.06 after the big-box retailer reported a smaller-than-expected drop in comparable sales.
AbbVie slipped 2.4 percent to $65.25 after Coherus BioSciences received a favorable patent ruling against AbbVie's Humira drug. Coherus shares rose nearly 7 percent to $23.55.
Declining issues outnumbered advancers on the NYSE by 2,211 to 624. On the Nasdaq, 2,249 issues fell and 433 advanced.
The S&P 500 index showed five new 52-week highs and 17 new lows, while the Nasdaq recorded 18 new highs and 52 new lows. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Saumyadeb Chakrabarty)