By Leah Schnurr

Stocks fell on Thursday, as investors took profits in financials after a recent rally and a bearish broker comment on 3M Co sent the diversified manufacturer lower.

Investors were also unsettled by the implications of the Federal Reserve's action to pump another $1 trillion into the financial system, fearing this could stir up inflation in the long term.

Dow component 3M fell 2.7 percent to $47.87 after brokerage Bernstein cut its price target, saying it saw near-term weakness in the company's end markets.

Shares of large pharmaceutical companies fell, including Pfizer

, which lost 3.9 percent to $13.70. An industry report said 2008 growth of U.S. prescription drug sales was only about one third of the growth in 2007.

Among financials, shares of JPMorgan declined 6.1 percent to $25.46 as some investors opted to book profits following the recent rally in bank shares. The KBW Bank index <.BKX>, up 11 percent on Wednesday, slid 4.5 percent.

On Wednesday the Fed revealed its latest plan to stabilize the recession-hit economy, saying it will purchase longer-term government debt, which it has not done since the 1960s. The aim is to raise the supply of credit, pushing down longer-term rates on mortgages and other loans.

Today we're seeing some weakness in part because the problems that were there yesterday, before the Fed announcement, are still there, said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama.

It's a refocusing on, yes, this is a positive, this helps, but it's going to take some time for the effect of it to be felt.

The Dow Jones industrial average <.DJI> fell 54.32 points, or 0.73 percent, to 7,432.26. The Standard & Poor's 500 Index <.SPX> gave up 4.97 points, or 0.63 percent, at 789.38. The Nasdaq Composite Index <.IXIC> was off 2.89 points, or 0.19 percent, to 1,488.33.

Citigroup fell 4.2 percent at $2.95 after it proposed an exchange offer of preferred shares that could give the U.S. government a 36 percent stake in the bank. As part of the plan, Citigroup would conduct a reverse stock split.

The Nasdaq performed better than the other two main indexes with its declines offset by a rise in shares of Oracle Corp after the business software maker reported results that beat forecasts. Oracle jumped 12.9 percent to $17.87.

A weaker dollar following the Fed's action on Wednesday also helped boost commodity prices and lift shares in the energy and materials sectors, cushioning the market.

Shares of Chevron rose 2.4 percent to $68.17 as U.S. front-month crude jumped more than 6 percent to $51.20 a barrel.

In economic news, the number of U.S. workers drawing continuous state unemployment benefits hit a fresh record high early this month, according to government data that highlighted the difficulties of finding jobs in the recession-hit economy.

(Editing by Chizu Nomiyama)

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