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U.S. stocks fell as better-than- forecast jobs growth and a drop in the unemployment rate failed to extend a weekly rally and lift the Standard & Poor’s 500 Index above its October high.

Goldman Sachs Group Inc. (GS) and Morgan Stanley fell more than 1.2 percent after analysts lowered the banks’ fourth-quarter earnings estimates. Bank of America Corp. (BAC) lost 2.1 percent after surging 8.6 percent yesterday. Alcoa Inc., due to start the earnings season on Jan. 9, slid 2.1 percent after saying it will close 12 percent of its global smelting capacity.

The S&P 500 (SPH2) fell 0.3 percent to 1,277.81 at 4 p.m. New York time. The index snapped a three-day advance, trimming its gain for the week to 1.6 percent. The Dow Jones Industrial Average dropped 55.78 points, or 0.5 percent, to 12,359.92 today.

“It’s definitely a solid report, but not a blowout surprise,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $44 billion, said in a phone interview. “The drop in the unemployment rate is good news, but it may reflect sluggishness in the labor force growth and it suggests that from a policy perspective we still have a lot of work to do.”

The S&P 500 has jumped 16 percent from its 2011 low as better-than-expected economic data boosted optimism that the world’s largest economy can weather Europe’s sovereign-debt crisis. The rally has brought the index toward the top of a trading range (SPX) it has be stuck in since August.

More Workers
U.S. employers added 200,000 workers to payrolls in December, Labor Department figures showed in Washington, more than the 155,000 gain projected in a Bloomberg News survey. The unemployment rate unexpectedly fell to 8.5 percent, the lowest since February 2009. The growth in payrolls did not beat estimates by as wide a margin as data from ADP Employer Services yesterday that helped trigger gains in equities.

Equities also dropped earlier as German factory orders fell 4.8 percent, the biggest decline in almost three years, fueling concern that Europe was heading into a recession.

Most U.S. stocks rose yesterday as banks rallied and a private report showed payrolls climbed, offsetting reduced profit forecasts at companies including Target Corp. and J.C. Penney Co.

Alcoa (AA) fell 2.1 percent, the most in the Dow, to $9.16. The biggest U.S. aluminum producer said yesterday it would close 12 percent of its smelting capacity amid falling prices. Alcoa is scheduled to mark the unofficial start of the fourth-quarter earnings season next week. Profit at S&P 500 companies rose 6 percent during the September-December period (SPX), according to analyst estimates compiled by Bloomberg, which would mark the slowest growth since the third quarter of 2009.

Banks Tumble
Financial shares (S5FINL) dropped 0.6 percent as a group in the S&P 500. Bank of America lost 2.1 percent, the second-most in the Dow, to $6.18. It surged 8.6 percent yesterday amid speculation the U.S. may introduce a new mortgage refinancing program. The shares retreated today after an Obama administration official, who asked for anonymity, denied that the White House is considering a trillion-dollar plan to refinance home loans.

Goldman Sachs slipped 1.2 percent to $93.42, while Morgan Stanley (MS) lost 2.3 percent to $15.90. The major U.S. banks most reliant on trading had their earnings estimates reduced by analysts at Sanford C. Bernstein & Co. and Ticonderoga Securities LLC as a weak fourth quarter dimmed prospects for a capital-markets rebound in the first half of 2012. Meredith Whitney Advisory Group LLC also cut fourth-quarter estimates on the banks.

Family Dollar Falls
Family Dollar Stores Inc. (FDO) fell 7.5 percent to $53.63 for the biggest retreat in the S&P 500. The discount retailer reported fiscal first-quarter revenue of $2.15 billion, missing the average analyst estimate of $2.17 billion. Comparable store sales increased 4.1 percent, compared with the average analyst estimate of 4.9 percent.

Stocks of companies that rely on consumer discretionary spending had the biggest gain among S&P 500 industries, rising 0.2 percent as a group.

J.C. Penney (JCP) advanced 3.5 percent to $34.96 after being raised to “outperform” from “neutral” at Macquarie Group Ltd. The third-largest department-store chain lost 2.7 percent yesterday after cutting its fourth-quarter profit forecast, citing declining sales and deeper discounts than anticipated during the holiday season.

Best Buy Co. gained 3.3 percent to $24.22. The world’s largest consumer-electronics retailer posted a same-store sales drop in December that was in line with analysts’ estimates and repeated its forecast for profit this year.

Highest Closing
With the S&P 500 this week approaching its highest closing since Oct. 28 and Aug. 1, chart levels fixated investors today.

The S&P 500 ended yesterday at 1,281.06, within 0.4 percent of its highest level since Aug. 1. Its relative strength index, a measure of how fast prices have risen in the last two weeks, was 61.2. Readings above 70 are considered by some traders as evidence a rally has been too rapid.

“The feeling in the market is that we need more catalysts to break above the resistance levels we are bumping up against right now,” Dan McMahon, director of equity trading at Raymond James Financial Inc. in New York, said in a telephone interview. “We’re in the high end of the trading range that we’ve been stuck in since August.”