* Nonfarm payrolls report due on Friday
* S&P bank index set for worst day since September
* Department store stocks fall on Macy's, Kohl's forecast cut
* Dow down 0.41 pct, S&P down 0.24 pct, Nasdaq up 0.02 pct (Updates to early afternoon)
By Yashaswini Swamynathan
Jan 5 (Reuters) - The Dow Jones Industrial Average and the S&P 500 were poised for their first down day this year as investors sold bank stocks, which had been the driving force behind the Trump rally over the past two months.
The S&P 500 financial index was down 1.6 percent in early afternoon trading - set for its worst day since September - due to declines in JPMorgan, Wells Fargo and Bank of America.
The index has risen 17.2 percent since Donald Trump's victory in the November election as investors bet on his proposals aimed at simplifying banking regulations.
Goldman Sachs, which was the biggest driver for the Dow in the rally, was off 2.2 percent.
"We are at the top of the range from the perspective of the Dow and the S&P, so that means we have a little bit of downside room to move, but frankly I think it will be fairly minimal," said Randy Frederick, vice president of trading and derivatives at Charles Schwab & Co.
"I suspect financials are just starting to catch up to the fact that rates have topped out in the near-term."
Adding to the downbeat sentiment was the ADP National Employment report which showed fewer-than-expected jobs were added in the private sector in December.
The report sets a precedent to Friday's more comprehensive nonfarm payrolls report that includes both private and public sector hiring.
At 13:03 p.m. ET, the Dow Jones Industrial Average was down 82.57 points, or 0.41 percent, at 19,859.59, the S&P 500 was down 5.84 points, or 0.257184 percent, at 2,264.91 and the Nasdaq Composite index was up 0.62 points, or 0.01 percent, at 5,477.62.
Seven of the 11 major S&P 500 sectors were lower, with financials and industrials weighing the most on the broader index.
Department stores Macy's dropped 14 percent while Kohl's fell 20 percent after the companies cut their profit forecasts.
The warnings swept up other department store stocks in their wake - Nordstrom fell 9 percent and J.C. Penney was down 7 percent.
Online retailer Amazon.com, which has been eating into the sales of brick-and-mortar retailers, was up 2.3 percent at $774.50. The stock provided the biggest boost to the Nasdaq.
Declining issues outnumbered advancers on the NYSE by 1,916 to 975. On the Nasdaq, 1,810 issues fell and 991 advanced.
Declining issues outnumbered advancers on the NYSE by 1,860 to 1,052. On the Nasdaq, 1,770 issues fell and 1,053 advanced.
The S&P 500 index showed 16 new 52-week highs and no new lows, while the Nasdaq recorded 71 new highs and 12 new lows. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Saumyadeb Chakrabarty)