US STOCKS-Wall Street falls as ruling hurts bank shares

                                

                                
 * Payroll gains miss estimates, but unemployment rate down
                                
 * Bank shares fall after court ruling
                                
 * Dow off 0.4 pct, S&P off 0.4 pct, Nasdaq off 0.5 pct
                                
 * For up-to-the-minute market news see [STXNEWS/US]
  (Updates with banks falling after court ruling on
foreclosures)
                                
 By Chuck Mikolajczak
                                
 NEW YORK, Jan 7 (Reuters) - U.S. stocks fell on Friday as
bank shares lost ground after a Massachusetts court ruling
against Wells Fargo and US Bancorp in which two home
foreclosures were voided.
                                
 The Supreme Judicial Court, the state's highest court, said
the banks that tried to take title to the homes failed to show
they held the mortgages at the time of foreclosure, raising the
possibility other foreclosure sales by banks could be
invalidated. For details, see [ID:nN07198844]
                                
 "Financials have really been a leader in the market in
recent weeks -- this could close that sector out," said Nick
Kalivas, senior equity index analyst at MF Global in Chicago.
                                
 Stocks had been struggling around break-even earlier after
a mixed U.S. employment report for December in which the
economy created fewer jobs than expected but the unemployment
rate fell.
                                
 Wells Fargo & Co <WFC.N> shares fell 2.8 percent to $31.25
and US Bancorp <USB.N> shed 0.6 percent to $26.14. The KBW Bank
index <.BKX> lost 1.4 percent.
                                
 The Dow Jones industrial average <.DJI> dropped 41.89
points, or 0.36 percent, to 11,655.42. The Standard & Poor's
500 Index <.SPX> dropped 5.53 points, or 0.43 percent, to
1,268.32. The Nasdaq Composite Index <.IXIC> dropped 12.24
points, or 0.45 percent, to 2,697.65.
                                
 Investors initially treaded lightly after the mixed U.S.
employment report in which non-farm payrolls rose 103,000.
[ID:nN06134458]
                                
 "It's probably not as good a number as the bulls wanted to
see, but by no means is it a bad number," said Stephen
Massocca, managing director at Wedbush Morgan in San
Francisco.
                                
 Labor Department revisions also showed 70,000 more jobs
added than previously reported in October and November.
                                
 For the jobs report, economists had revised their
expectations for non-farm payrolls higher to 175,00 after
Wednesday's surprisingly strong ADP private-sector employment
figures, which were triple forecasts.
                                
 "If we hadn't had that ADP number, this would have been
seen more positively," said Massocca.
                                
 The S&P 500 has posted gains for the day on each of the
last four monthly payrolls reports, according to a data
analysis by New York-based Instinet. Only one of the four gains
was more than 1 percent, while the other three were less than
0.65 percent.
                                
 On Capitol Hill, Federal Reserve Chairman Ben Bernanke
sounded cautiously more upbeat than he had in recent public
remarks, citing improvements in consumer spending and a drop in
claims for jobless benefits as hopeful signs for the recovery.
[ID:nN06147394]
 (Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)