CORRECTED-UPDATE 9-Oil hits 7-month low as risk aversion sweeps ...

* Euro zone fears hit single currency, commodities

* U.S. oil heads for biggest monthly percentage drop since 2008

* U.S. crude breaks through key technical support

* Coming up: EIA oil data 11 a.m. EDT Thursday

By Robert Gibbons

NEW YORK, May 30 (Reuters) - Oil dropped more than 3 percent on Wednesday to the lowest level in seven months as fears about the euro zone crisis sparked an erosion in risk appetite across markets.

Prices for U.S. benchmark West Texas Intermediate crude futures headed toward their biggest monthly drop since the financial crisis of 2008, breaking below a key technical level as investors headed to perceived safe havens.

Worries about Europe mounted as borrowing costs rose for Spain and Italy and the latest poll showed a lead for Greece's left-leaning, anti-austerity parties ahead of next month's election.

The crisis, which could dent fuel demand, has helped knock Brent prices down to nearly $100 per barrel, far off 2012 peaks over $128 hit in early March. Equities and other commodities, including industrial metals platinum and copper, also fell.

Wall Street stocks fell more than 1 percent, with European equities also posting sharp losses, while U.S. Treasuries rallied, sending yields of benchmark 10-year notes to an at least 60-year low.

"This is about a global slowdown, European concerns, and a lack of liquidity," said Richard Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.

"Funds have run for the hills, and I believe those were the guys who were propping up the market."

The Thomson Reuters-Jefferies CRB index, a global benchmark for commodities, tumbled 1.68 percent to the lowest levels since September 2010.

Brent July crude fell $3.21 to $103.47 a barrel, the lowest settlement since Dec. 16. Brent prices are down more than $15 a barrel so far in May, heading for the biggest monthly decline since October 2008.

U.S. July crude slumped $2.94 to $87.82 a barrel, the lowest settlement since Oct. 21, 2011. Front-month crude prices were headed for a loss of about 17 percent for May, the biggest monthly drop since December 2008.

Wednesday's price slide took U.S. crude below the 61.8 percent Fibonacci retracement of the October to March rally at $88.55 a barrel, a key level of support for technical traders that can intensify selling by triggering stop loss selling.

U.S. RBOB gasoline and heating oil fell ahead of front-month June contract expirations on Thursday, with gasoline, which had been trading around the 200-day moving average for the past eight sessions, breaking firmly below that level.

U.S. crude inventories fell by 353,000 barrels last week, according to industry group the American Petroleum Institute's weekly report, against expectations stocks had risen.

Stocks at the Cushing, Oklahoma, delivery point for the U.S. crude contract, fell 557,000 barrels in the first data after the Seaway pipeline reversal to take crude from the Midwest to the U.S. Gulf Coast.

Gasoline stocks rose 2.1 million barrels and distillate stocks fell 1.3 million barrels, the API said.

Crude stocks had been forecast to be up a 10th straight week, by 600,000 barrels. Gasoline stocks were expected to be down 800,000 barrels, with distillate stocks seen near flat, down 100,000 barrels.

The U.S. Energy Information Administration's weekly report will follow on Thursday at 11 a.m. EDT (1500 GMT).

Crude prices found some short-lived support intraday on news that the European Commission had called for the euro zone to move to a banking union and consider directly recapitalizing banks from its bailout fund.

The benchmark U.S. Treasury yield fell to its lowest in at least 60 years as worries of contagion from Spain's ailing banks raised bids for low-risk investments.

Data showing pending home sales in the United States fell in April to a four-month low, an unexpected slip that undermined any recent optimism about the housing sector, adding to investor concerns.

CHINA

Hopes that No. 2 oil consumer China would act to counter slowing growth were dimmed after influential academics said Beijing should shun aggressive fiscal stimulus, in remarks published in leading state-backed newspapers on Wednesday.

Those views joined a chorus of commentary countering market expectations that China might unveil a stimulus package similar to the 4 trillion yuan ($630 billion) in spending unleashed during the global financial crisis.

IRAN'S NUCLEAR DISPUTE

The West's objections to Iran's nuclear program lurked as a potentially supportive factor for oil prices, along with the 14-month-old uprising in Syria.

U.N. nuclear inspectors showed new satellite imagery indicating that Iran may be conducting clean-up work at the Parchin military site where inspectors suspect tests relevant to developing nuclear weapons have been carried out, according to Western diplomats.

Iranian President Mahmoud Ahmadinejad said he did not expect talks with six world powers in Moscow next month to yield any major breakthroughs.

Iran faces a European Union embargo on its crude oil in July and tightening U.S.-led sanctions have sent many of Tehran's other oil customers scrambling for alternatives. (Additional reporting by Matthew Robinson in New York,; Simon Falush in London and Luke Pachymuthu in Singapore; Editing by David Gregorio and Dale Hudson)