Stocks dropped sharply Thursday as Wall Street, shrugging off a key inflation gauge that clears the way for another interest-rate cut, got hit with a pile of negative corporate news and profit warnings.

The Dow Jones industrial average lost 181.49 points at 10,690. The technology-heavy Nasdaq Composite Index dropped 77.39 points at 2,044, and the broad Standard & Poor's 500 Index was down 21.70 points.

The prospect of a failed merger between heavyweights General Electric Co. and Honeywell International Corp. further spooked investors already on edge over corporate profit warnings.

The two Dow components proposed divestitures worth $2.2 billion to win European Commission approval for their planned merger, but said they were not optimistic that the proposal would be accepted. Honeywell dropped more than 8 percent and in massive volumes, accounting for about a quarter of the Dow's loss.

Wall Street also battled profit warnings as the second-quarter comes to a close. Ketchup giant H.J. Heinz Co. , computer memory firm Silicon Storage Technology Inc. and electronic parts maker CTS Corp. warned quarterly results will land shy Wall Street estimates as the corporate confessional season picks up steam this week.

Economic data was encouraging, but not sufficient to overcome the general sense of gloom. U.S. inflation at the wholesale level was tame in May, according to a government report, offering reassuring news for Federal Reserve policymakers who will meet later this month to consider cutting interest rates. But Wall Street already widely expects the Fed will slice another 25 basis points off interest rates after five steep cuts this year to lift the economy.

A separate report showed the four-week moving average of jobless claims rose to 424,500, adding to Wall Street's gray mood. That was the highest level in almost nine years and pointed to further weakening in the labor market as the world's richest economy struggles to climb out of its slowdown.

Ketchup giant H.J. Heinz Co., computer memory firm Silicon Storage Technology Inc. and electronic parts maker CTS Corp. warned quarterly results will land shy Wall Street estimates as the corporate confessional season picks up steam this week. 

Semiconductor maker Texas Instruments Inc. on Wednesday after the close reiterated its financial outlook for the second quarter, saying revenues would fall 20 percent from the first quarter amid industry weakness. 

Ingram Micro Inc., the world's largest wholesale distributor of computer products, on Wednesday after the close lowered guidance for its second quarter, warning it could break even or lose up to $10 million amid weak technology demand from U.S. companies and a softening in its international markets. 

Silicon Storage Technology Inc., which makes memory products for computers, said on Wednesday after the close its second-quarter earnings will fall short of expectations due to excess inventory and a slowdown in new orders, adding that it will slash production. 

Declining issues led advancers nearly 3 to 1 on the New York Stock Exchange. Volume was 970.61 million shares, compared with 819.46 million at the same point Wednesday. 

The Russell 2000 index lost 8.51 at 496.61. 

Overseas, Japan's Nikkei stock average gained 0.2 percent. Germany's DAX index was down 1.3 percent, Britain's FT-SE 100 fell 1.2 percent, and France's CAC-40 slipped 1.1 percent.

A strong earthquake pushed Taiwan asset prices lower on Thursday, adding to the wobbles felt across the region's markets as investors were struck with more evidence of weakening in the U.S. economy. 

Taiwan's benchmark TAIEX stock index ended 1.7 percent lower in the wake of the earthquake that measured 6.2 on the open-ended Richter scale and sent office buildings swaying.

-- Reuters and The Associated Press contributed to this report.

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