U.S. stocks fell on Thursday as the dollar's rebound quelled demand for risky assets, while a soft FedEx forecast hit transportation shares and a prominent analyst cut estimates for two major banks.

The U.S. dollar index <.DXY>, which measures the dollar's performance against a basket of major currencies, jumped nearly 1 percent -- touching its highest level in more than three months. In recent months, stocks have risen sharply while the greenback dropped, as investors took advantage of the inexpensive currency to buy higher-yielding assets.

An unexpected increase in new claims for jobless benefits in the latest week illustrated the bumpy road for the U.S. economic recovery, which contrasted with an index that showed factory activity accelerated rapidly in the U.S. Mid-Atlantic region in December.

The story today has been the dollar spiking up to a three-month high, triggering some dollar short covering and unwinding of the dollar carry-trade positions, said Fred Dickson, market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.

The stall in terms of the initial jobless claims says the economy hasn't really started to perk up -- it hasn't gotten worse, but we seem to have stalled at the moment.

Economic bellwether FedEx Corp forecast third-quarter profit below analysts' expectations, pushing its stock down 5.7 percent to $84.88. The Dow Jones Transportation Average <.DJT> lost 1.2 percent.

Influential bank analyst Meredith Whitney trimmed earnings estimates for Goldman Sachs Group Inc and Morgan Stanley for 2010 and 2011. Goldman Sachs shares dropped 1.8 percent percent to $162.03, while Morgan Stanley shed 3.6 percent to $29.25.

The S&P Financial Index <.GSPF> slid 1.4 percent, while the NYSE Arca Broker/Dealer Index <.XBD> fell 1.3 percent.

Citigroup Inc tumbled 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 Citigroup stake, sometime within the next 12 months.

The Dow Jones industrial average <.DJI> dropped 97.64 points, or 0.94 percent, to 10,343.48. The Standard & Poor's 500 Index <.SPX> fell 10.11 points, or 0.91 percent, to 1,099.07. The Nasdaq Composite Index <.IXIC> lost 21.52 points, or 0.98 percent, to 2,185.39.

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 confirmation vote. Stocks were relatively unaffected after the vote.

BlackBerry maker Research In Motion said it had isolated and resolved the issue that delayed e-mail service for some North American customers this morning. RIM's stock fell 1.6 percent to $63.68 on Nasdaq ahead of its quarterly results, scheduled for release after Thursday's closing bell.

(Editing by Jan Paschal)

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