INVESTORS SEEK SAFETY AFTER BHUTTO DEATH

Wall Street stocks fell on Thursday after Benazir Bhutto, Pakistan's opposition leader, was killed in a gun and bomb attack leading to a flight to safety in US markets.

News of her death prompted safe-haven buying in US treasuries. Gold hit a fresh one-month high amid fears of heightened geopolitical tension in the region while crude oil futures also rose after the news.

US equities were also hit by news that durable goods orders rose much less than expected last month, adding to fears of a US economic slowdown.

Financials were weak after Goldman Sachs warned of more writedowns in the brokerage sector and said Citigroup may cut its dividend.

However investors in the retail sector were offered some respite after an index of US consumer confidence rose unexpectedly.

Less than an hour after the opening bell, the S&P 500 was down 0.5 per cent at 1,490.11, the Nasdaq Composite fell 0.4 per cent to 2,713.31 while the Dow Jones Industrial Average declined 0.5 per cent to 13,483.49.

Bond prices rose causing yields to fall as investors looked to position themselves more defensively. The yield on the two-year Treasury note fell 7 basis points to 3.23 per cent while the 10-year Treasury note yield note fell 6.5bp to 4.21 per cent .

The dollar extended overnight losses to trading 0.4 per cent lower against euro and 0.6 per cent weaker against the Swiss franc.

Crude oil rose 49 cents to $96.46 while gold prices also rose.

Citigroup fell 2.2 per cent to $29.78 after a Goldman Sachs analyst said Citi could cut its dividend by 40 per cent and write off as much as $18.7bn in the fourth quarter as it looks to raise an additional $5-$10bn to boost its capital reserves.

"We assume a more challenging credit environment mired by additional write-offs and higher credit costs," William F. Tanona, Goldman Sachs analyst, said.

Citi forecast $8-$11bn in writedowns for the fourth quarter and sought a $7.5bn capital infusion from Abu Dhabi last month.

Goldman also said it expects another $11.5 in writedowns from Merrill Lynch while JPMorgan is expected to see a $3.4bn writedown, double Goldman's previous forecast.

Merrill Lynch fell 1.7 per cent to $53.60 while JPMorgan shed 1.3 per cent to $44.38.

"Although we have seen many firms take the appropriate actions in recent weeks as they relate to write-downs and capital raises, we still believe it will be a couple of quarters before the current credit crisis is fully digested by the markets," Mr Tanona, said.

Shares in Sallie Mae, the troubled student lender, fell 7.9 per cent to $20.38 after it said it plans to raise $2.5bn via a stock sale to help settle bad bets on its share price.

Sallie will offer $1.5bn in common stock and $1bn in preferred stock to pay off derivative contracts known as equity forward contracts, which have soured after its shares suffered sharp losses. Lehman Brothers cut its price target from $31 to $29.

Meanwhile, Potash Corp gained 2 per cent to $146.32 after Goldman told investors to buy the shares.

European stocks were higher as Wall Street opened. The FTSE Eurofirst 300 index rose 0.2 per cent while the FTSE100 gained 0.3 per cent . In Asia the Nikkei broke a four-day winning streak, to close 0.6 per cent lower.

In economic news, durable goods orders rose just 0.1 per cent in November, compared to an expected increase of 3 per cent, after defence spending slumped.

A decline in October was revised down to -0.4 per cent, double the previous reported figure, the Commerce Department said.

However, there was better news for the retail sector after a measure of consumer confidence improved slightly in December. The Conference Board's index of consumer sentiment rose to 88.6 this month, from a revised 87.8 in November. Economists had expected a reading of 86.5.

"Consumers' short-term outlook regarding business conditions, employment, inflation and stock prices improved marginally," Lynn Franco, director of the Conference Board Consumer Research Center, said.

However, she said the picture remained far from rosy. "Persistent declines in the present situation index indicate the economy is still losing momentum."

New claims for unemployment benefit rose 1,000 to 349,000 last week although the four-week moving average fell 1,000 to 342,500.