* Citigroup shares slump after Fed rejects capital plan
* GDP grew 2.6 pct in Q4; jobless claims unexpectedly drop
* BofA to pay $9.3 bln to settle mortgage bond claims
* Indexes down: Dow 0.3 pct, S&P 0.3 pct, Nasdaq 0.4 pct (Updates to open, adds Morning News Call link)
By Ryan Vlastelica
NEW YORK, March 27 (Reuters) - U.S. stocks fell on Thursdayas a report showing modest economic growth in the fourth quarterwas not viewed as positive enough to offset lingeringgeopolitical uncertainties, with the S&P 500 near record levels.
Markets were also pressured by a steep decline in CitigroupInc shares, which suffered their biggest daily drop sinceNovember 2012 after the Federal Reserve rejected the bank'scapital plan.
Gross domestic product expanded at a 2.6 percent annual ratein the fourth quarter, the Commerce Department said, up from the2.4 percent pace it estimated last month but slightly under the2.7 percent analyst forecast. Jobless claims unexpectedly fellin the latest week, dropping to near a four-month low, thelatest indicator to support a theory that weak data earlier thisyear was related to bad weather rather than worseningfundamentals.
"We need surprisingly good news to jar the market out of itstrading range, and today's data, while respectable, isn't that,"said Mark Luschini, chief investment strategist at JanneyMontgomery Scott in Philadelphia.
The U.S. and the European Union on Wednesday agreed toprepare possibly tougher economic sanctions in response toRussia's annexation of Ukraine's Crimea territory.
While Western leaders earlier said they would hold off onnew sanctions unless Moscow takes further destabilizing actionsin the region - which Russian President Vladimir Putin last weeksaid he wasn't interested in doing - investors are concernedabout the potential fallout of a prolonged conflict.
"Bigger sanctions would inflict damage on Russia, and therecould be a spillover on Europe's economy, especially in theenergy space, which would have a broader impact," said Luschini,who helps oversee about $63 billion in assets. "This is anelement of concern in a market where we don't haveoverwhelmingly good news to trump it."
Citigroup slumped 5.9 percent to $47.18 a day after the Fedrejected the bank's plan to buy back $6.4 billion of shares andboost dividends, saying it wasn't sufficiently prepared tohandle a potential financial crisis. A source close to thematter told Reuters that Citi officials had not expected therejection. Shares of Zions Bancorp, which also had itsplan rejected, fell 1.5 percent to $29.76.
The Dow Jones industrial average was down 43.03points, or 0.26 percent, at 16,225.96. The Standard & Poor's 500Index was down 4.85 points, or 0.26 percent, at 1,847.71.The Nasdaq Composite Index was down 15.17 points, or0.36 percent, at 4,158.41.
Equities have been volatile this week, moving on any sign ofeasing or rising tensions in the biggest conflict between Russiaand the United States since the Cold War. While data hassupported the market, investors used the uncertainty overUkraine to take profits in some of the market's biggestoutperformers, especially in the technology and biotech sectors.Still, the S&P 500 is about 2 percent away from an all-timeclosing high reached earlier this month.
The financial Select Sector SPDR ETF was littlechanged on the day, with the weakness from Citigroup counteredby a 1.6 percent rise in Bank of America, which roseafter it agreed to pay $9.3 billion to settle claims that itsold Fannie Mae and Freddie Mac faultymortgage bonds. The settlement helps the bank end one of thelargest legal headaches it still faced from the financialcrisis.
Yum Brands Inc, which has heavy exposure to China,said its KFC chain was planning an overhaul of its China menuand launching a publicity drive as it struggled to emerge fromthe shadow of a food-safety scare in 2012. Shares fell 1.6 percent to $72.96.
TriNet Group Inc rose 12.6 percent to $18.05 in itstrading debut a day after it priced its initial public offeringat $16 per share, which valued the cloud-based payroll processorat about $1.09 billion.
Pending home sales fell 0.8 percent in February, dropping totheir lowest level in more than two years, the NationalAssociation of Realtors said. Analysts were expecting flat salesin the month. (Editing by Bernadette Baum)
HSBC Holdings (HSBA)