* Failure of Boehner's bill suggests compromise difficult
* Banking shares tumble; Citigroup and BofA shares drop
* Research In Motion shares slide more than 18 percent
* Indexes down: Dow 1.1 pct, S&P 500 1.2 pct, Nasdaq 1.3 pct
By Leah Schnurr
NEW YORK, Dec 21 (Reuters) - U.S. stocks tumbled more than 1 percent on Friday after a Republican proposal for averting the "fiscal cliff" failed to pass, diminishing hopes that a deal would be reached soon in Washington.
Trading was volatile as investors reckoned a fiscal agreement between the White House and Republicans before the end of the year was unlikely. Lower volume ahead of the Christmas and New Year holidays exaggerated market swings further, and the CBOE Volatility Index, or VIX, was up 6.5 percent.
Late on Thursday, Republican House Speaker John Boehner failed to muster enough votes from his party to pass a tax bill, dubbed "Plan B," to avert the so-called fiscal cliff, $600 billion of tax hikes and spending cuts due to start in January. If U.S. lawmakers don't agree soon on a budget that avoids the cliff, the U.S. economy could tip into recession.
"The failure with Plan B was disappointing, if not terribly surprising, but now there's a real lack of clarity about what will happen and markets hate that," said Mike Hennessy, managing director of investments for Morgan Creek in Chapel Hill, North Carolina.
The lack of support for Plan B, which called for tax increases on those who earn $1 million or more a year, suggested it would be difficult to get Republican support for the more expansive tax increases that President Barack Obama has urged. That, in turn, reduces the possibility of an agreement between the White House and Republicans before the end of the year.
Earlier on Friday, Boehner said congressional leaders and Obama must try to move on and work together.
While Friday's stock market slide reflected investors' anxiety, it wasn't a large enough drop to suggest they believed a deal would be reached too late to avoid damage to the economy, said Mark Lehmann, president of JMP Securities, in San Francisco.
"You could have easily woken up today and seen the market down 300 or 400 points, and everyone would have said, 'That's telling you this is really dire,'" Lehmann said.
"I think if you get into mid-January and (the talks) keep going like this, you get worried, but I don't think we're going to get there."
Banking shares, which outperform in times of economic expansion and have led the market on signs of progress with resolving the fiscal impasse, led declines. Citigroup Inc fell 1.8 percent to $39.44, while Bank of America slid 2.4 percent to $11.24. The KBW Banks index lost 1.4 percent.
The Dow Jones industrial average dropped 147.89 points, or 1.11 percent, to 13,163.83. The Standard & Poor's 500 Index fell 17.08 points, or 1.18 percent, to 1,426.61. The Nasdaq Composite Index lost 39.90 points, or 1.31 percent, to 3,010.49.
Even with the declines, the S&P 500 is up nearly 1 percent for the week and about 13 percent for the year, though uncertainty over the cliff may prompt many traders to lock in gains as the year draws to a close.
The day's round of data indicated the economy was surprisingly resilient in November; consumer spending rose by the most in three years and a gauge of business investment jumped.
But separate data showed consumer sentiment slumped in December. The S&P Retail Index fell 1.3 percent.
U.S.-listed shares of Research in Motion sank 19.8 percent to $11.32 after the Canadian company, which makes the BlackBerry, reported its first-ever decline in its subscriber numbers on Thursday. A new fee structure for its high-margin services segment also concerned investors.
Herbalife dropped for an eighth day in a row. Investor Bill Ackman on Thursday ramped up his campaign against the company. Herbalife skidded 17.8 percent to $27.72 and has shed more than 35 percent this week.