* Citigroup falls in premarket, 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
* Futures up: Dow 18 pts, S&P 0.8 pt, Nasdaq 0.5 pt (Updates with GDP and jobless claims data)
By Ryan Vlastelica
NEW YORK, March 27 (Reuters) - U.S. stock index futures indicated a flat opening on Wall Street Thursday as the latest economic data pointed to improving conditions, though investors were reluctant to make big bets amid tensions in Ukraine and a drop in Citigroup shares.
* Gross domestic product expanded at a 2.6 percent annual rate in the fourth quarter, the Commerce Department said, up from the 2.4 percent pace it estimated last month but slightly under the 2.7 percent expectation of analysts. In a positive sign for the labor market, jobless claims unexpectedly fell in the latest week, dropping a near four-month low.
* The data provided encouraging signs on the economy, supporting a theory that weakness seen earlier this year was related to bad weather rather than worsening fundamentals.
* Equities have been volatile this week, driven by fluctuating tensions in the biggest conflict between Russia and the United States since the Cold War. While data has supported the market, investors used the uncertainty over Ukraine as an opportunity to take profits in some of the market’s biggest outperformers, especially in the technology and biotech sectors.
* Citigroup Inc slumped 5.9 percent to $47.18 in premarket trading a day after the Federal Reserve rejected the bank’s plan to buy back $6.4 billion of shares and boost dividends, saying the bank wasn’t sufficiently prepared to handle a potential financial crisis. A source close to the matter told Reuters that Citi officials had not expected the rejection.
* Four other banks also had their plans rejected, including Zions Bancorp and the U.S. units of HSBC , RBS and Santander.
* The financial Select Sector SPDR ETF was little changed on the day, with the weakness from Citigroup countered by a 0.8 percent premarket rise in Bank of America. The stock rose after it agreed to pay $9.3 billion to settle claims that it sold Fannie Mae and Freddie Mac faulty mortgage bonds, helping the bank to end one of the largest legal headaches it still faced from the financial crisis.
* S&P 500 futures rose 0.8 point but were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 18 points and Nasdaq 100 futures rose 0.5 point.
* Geopolitical issues remained in view a day after the U.S. and the European Union agreed to work together to prepare possibly tougher economic sanctions in response to Russia’s annexation of Ukraine’s Crimea territory, including on the energy sector. While Western leaders earlier agreed to hold off on new sanctions unless Moscow takes further destabilizing actions in the region, investors are concerned about the potential fallout of a prolonged conflict.
* Ukraine won a $27-billion international financial lifeline from the International Monetary Fund, rushed through in the wake of Russia’s annexation of Crimea, as Moscow’s economy minister spoke of the cost of military action in its former Soviet neighbors. The credit is in return for tough economic reforms that will unlock further aid from the European Union, the United States and other lenders over two years.
* Pending home sales are due out at 10:00 a.m. EDT (1400 GMT), with sales expected to have held steady in February.
* Yum Brands Inc, which has heavy exposure to China, said its KFC chain was planning an overhaul of its China menu and launching a publicity drive as it struggled to emerge from the shadow of a food-safety scare in 2012.
* Cloud-based payroll processor TriNet Group Inc said it priced its initial public offering at $16 per share, valuing the company at about $1.09 billion. The stock will begin trading on Thursday, a day after King Digital Entertainment Plc slumped in its trading debut. Shares of King rose 1.6 percent to $19.30 in premarket trading. (Editing by Bernadette Baum)