The caution was tempered, however, by hopes that Congress will push to have the remaining $350 billion of the $700 billion financial rescue plan released by the time U.S. President-elect Barack Obama is sworn in on January 20.

* Citigroup fell over 8 percent to $6.16 after news that the embattled U.S. bank is nearing a deal to sell a controlling stake in its Smith Barney retail brokerage business to Morgan Stanley to raise cash. Morgan Stanley rose 6 percent to $20.17.

* Alcoa Inc is scheduled to kick off the earnings season when it posts fourth-quarter results after the bell. Deutsche Bank recommended a "sell" on the aluminum producer, sending the stock down nearly 7 percent to $10.07.

* The Dow Jones industrial average <.DJI> was down 14.74 points, or 0.17 percent, at 8,584.44. The Standard & Poor's 500 Index <.SPX> was down 3.58 points, or 0.40 percent, at 886.77. The Nasdaq Composite Index <.IXIC> was down 1.70 points, or 0.11 percent, at 1,569.89.

(Editing by James Dalgleish)