Market falls on economic worries and Bhutto death

NEW YORK (Reuters) - Stocks fell on Thursday after a weak durable goods report raised concerns about the outlook for the economy and an assassination in Pakistan sparked worries about global political stability.

Financial stocks were the main drag on the market after a Goldman Sachs analyst said Citigroup Inc (C.N), Merrill Lynch & Co (MER.N) and JPMorgan Chase & Co (JPM.N) may face larger fourth-quarter debt write-offs than previously expected.

Orders for big-ticket items such as computers and appliances rose a slender 0.1 percent in November, well below economists' 2 percent forecast. Adding to the unease about the health of the economy, new applications for U.S. jobless benefits unexpectedly rose.

News that Pakistani opposition leader Benazir Bhutto had been killed rattled stock markets and sent oil and gold higher.

"Durable goods was weak and set the market off to a weak footing. But it was the unfortunate death of Benazir Bhutto in Pakistan that grabbed the headlines. That's a global stability story," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

"Financials are continuing to languish, and will probably do so until the end of the year," he added.

The Dow Jones industrial average (.DJI) was down 123.48 points, or 0.91 percent, at 13,428.21. The Standard & Poor's 500 Index (.SPX) was down 11.50 points, or 0.77 percent, at 1,486.16. The Nasdaq Composite Index (.IXIC) was down 25.97 points, or 0.95 percent, at 2,698.44.

A private report showing U.S. consumer confidence was stronger-than-expected in December lent some support to the market.

The Conference Board said its index of consumer sentiment rose to 88.6 in December from a revised 87.8 in November. The median forecast of economists polled by Reuters was for a reading of 86.5.

Student loan provider Sallie Mae (SLM.N) fell 6 percent to $20.80 after the company said late Wednesday it plans to sell about $2.5 billion of stock and mandatory convertible securities to help pay off derivatives contracts that amounted to a bet that its share price would keep increasing.

S&P financials (.GSPF) fell 1.3 percent. Merrill Lynch dropped 2.3 percent to $53.25 while JP Morgan shares fell 1 percent to $44.51.

The Goldman analyst also said Citigroup may have to slash its dividend by 40 percent to preserve capital, sending Citi's shares down 2.2 percent to $29.78.