U.S. stocks fell on Thursday as a rebound in the dollar dampened appetite for risk, while a FedEx forecast weighed on transportation shares and a prominent analyst cut estimates for two major banks, compounding losses for financials shares.

The dollar <.DXY> jumped 1.2 percent against a basket of currencies. In recent months. equities have risen sharply while the greenback dropped, as investors took advantage of the inexpensive currency to buy higher-yielding assets.

An unexpected increase in applications for jobless benefits highlighted the spotty nature of the U.S. economic rebound and contrasted against an index that showed factory activity accelerated rapidly in the U.S. Mid-Atlantic region.

Economic bellwether FedEx Corp, forecast third-quarter profit below expectations, sending shares tumbling 5.3 percent to $85.17. The Dow Jones Transportation average <.DJT> fell 1.1 percent.

Influential bank analyst Meredith Whitney cut earnings estimates for Goldman Sachs Group Inc and Morgan Stanley for 2010 and 2011. Goldman shares fell 2 percent to $161.64, while Morgan Stanley dropped 3.7 percent to $29.22.

The S&P financial index <.GSPF> dropped 1.2 percent.

Citigroup Inc slid 7.3 percent to $3.20 after the bank's stock and bond offering attracted weak demand and priced much lower than expected, prompting the U.S. Treasury to delay a plan to sell its stake in the bank, sometime within the next 12 months.

The fact the government did not sell their stake was a sign there was really limited market appetite, said Nick Kalivas, vice president of financial research & senior equity index analyst at MF Global in Chicago.

Citigroup didn't really meet their objective, and now you have this government share sale hanging over the market.

The Dow Jones industrial average <.DJI> fell 98.17 points, or 0.94 percent, to 10,342.95. The Standard & Poor's 500 Index <.SPX> lost 10.04 points, or 0.91 percent, to 1,099.14. The Nasdaq Composite Index <.IXIC> gave up 21.97 points, or 1 percent, at 2,184.94.

The U.S. Senate Banking Committee approved the nomination of Federal Reserve Chairman Ben Bernanke for a second term, sending it to the full Senate for a final vote. Stocks held on to declines after the vote.

The Fed voted Wednesday to keep interest rates at historic lows, but the U.S. dollar strengthened as the Fed said economic activity has continued to pick up.