Mixed day on Wall Street

Wall Street closed out a dismal third quarter with a mixed performance Thursday after Merck & Co. said it would be forced to remove its best-selling Vioxx arthritis drug from the market.

Merck’s unexpected bad news left blue chips with a loss for the day, while high-tech stocks got a lift from bargain hunters.

Merck’s troubles – Vioxx was found to carry an increased risk of heart attack and stroke – were magnified because the company is part of the Dow Jones industrials.

Analysts said the Dow likely would have been flat to slightly higher without Merck’s announcement.

Bad economic news also weighed on stocks as the Labor Department reported the highest increase in weekly first-time jobless claims in seven months, and the Commerce Department reported consumer spending was flat for the month of August.

“I think the Merck bombshell has certainly superseded anything else we might have gotten today,” said Bryan Piskorowski, market analyst at Wachovia Securities. “Merck is going to keep us in the trading range we’ve been in all week, and I think we’ll be in that range for the short term, at least until earnings come out in a few weeks.”

The Dow fell 55.97, or 0.6%, to 10,080.27. Merck represents 3.27% of the Dow, and Dow Jones & Co., which manages the index, said Merck’s tumbling share price equated to at least an 88 point drop.

Broader stock indicators were narrowly mixed. The Standard & Poor’s 500 index was down 0.22, or 0.02% at 1,114.58, and the Nasdaq composite index gained 2.90, or 0.2%, to 1,896.84.

While Merck’s troubles seemed to be limited to the company itself - pharmaceutical stocks were mixed to slightly lower on the news – it was just one of many pressures on stocks throughout the third quarter, which saw oil prices rise past 50 per barrel, an unexpected slowdown in economic growth and a series of negative earnings warnings from top companies.

The major indexes ended the quarter substantially lower, with the Dow losing 3.4 percent, the Nasdaq tumbling 7.4 percent and the S&P 500 dropping 2.3 percent.

The Dow’s losses from July to September was the biggest quarterly decline since the first quarter of 2003, while the Nasdaq’s losses for the quarter were the worst since the third quarter of 2002.

For the month, the Dow lost 0.9% – the sixth consecutive September loss for the index – while the S&P 500 gained 0.9% and Nasdaq added 3.2%.

In other economic news, consumer incomes rose 0.4% in August, but spending remained flat as consumers contended with higher fuel prices throughout the summer.

A barrel of light crude settled at 49.64, up 13 cents, on the New York Mercantile Exchange.

With consumer spending in a lull, economists said it will be up to businesses’ capital spending to push the economy forward in the short term. The Commerce Department reported that business spending grew at a 3.3% annual rate in the second quarter, an improvement on a previous estimate of 2.8% but still lower than the 4.5% increase from the first quarter.

Merck said the withdrawal of Vioxx from the market will mean a major loss of revenue, as the drug accounted for 2.5 billion in worldwide sales. Merck plummeted 27 percent, or 12.07, to 33, stripping the company of more than 25 billion in market capitalization.

Fellow Dow component Pfizer Inc., maker of the rival Celebrex drug, gained 42 cents to 30.60 on the news, while other major pharmaceutical companies were slightly lower.

GlaxoSmithKline PLC slipped 11 cents to 43.73, while Bristol-Myers Squibb Co. lost 19 cents to 23.67.

PepsiCo was up 55 cents to 48.65 after it said a growing international business led to a 6 percent rise in revenue for the third quarter. The soft drink company beat Wall Street forecasts by a penny per share.

Nortel Networks Inc. said 1,400 jobs would be lost in the U.S. as the company trims its research and administrative staffs in a cost-cutting measure.

The company will take a 450 million charge for the restructuring. Nortel was down 11 cents at 3.40.

Advancing issues outnumbered decliners by more than 8 to 5 on the New York Stock Exchange, where volume came to 1.75 billion shares, compared with 1.4 billion on Wednesday.

The Russell 2000 index of smaller companies was up 1.86, or 0.3%, at 572.93.