Blue chips fell Thursday after drug company and Dow component Merck & Co. (MRK) said it was withdrawing its blockbuster arthritis drug Vioxx, casting a dark mood over the market, while high-tech stocks got a lift from bargain-hunters.

The Dow Jones industrial average (search) closed down 55.97 points, or 0.55 percent, at 10,080.27. The Standard & Poor's 500 Index (search) ended down 0.22 point, or 0.02 percent, at 1,114.58. The technology-heavy Nasdaq Composite Index (search) was up 2.90 points, or 0.15 percent, at 1,896.84.

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.

"If the Dow were only 29 stocks today, it actually would be up," said Gary Wedbush, head of trading at investment bank Wedbush Morgan in Los Angeles.

Merck announced a voluntary withdrawal of arthritis drug Vioxx (search) following indications after a colon cancer trial confirmed long-standing concerns the drug raises the risk of heart attack and stroke.

"I think the Merck bombshell has certainly superseded anything else we might have gotten today," said Bryan Piskorowski, market analyst at Wachovia Securities.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."

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 sales. Merck plummeted 27 percent, or $12.07, to $33, stripping the company of more than $25 billion in market capitalization.

"Although [the news] is company specific, it adds more evidence to what is turning out to be a difficult earnings season relative to what we have seen in the past year," said Peter Boockvar, equity strategist at Miller Tabak & Co.

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.

For the month, the Standard & Poor's index ended with a 0.93 percent gain, its best performance in September in six years. The Dow ended down 0.95 percent, and Nasdaq ended the mnth up 3.2 percent.

For the quarter, the Dow ended down 3.4 percent and the S&P declined 2.3 percent. Both the S&P and Dow logged their worst performance since the first quarter of 2003. Nasdaq ended the quarter down 7.4 percent.

Traders said "window dressing," in which fund managers buy winners and sell losers at the end of the quarter to give their portfolios a more favorable look to investors, helped the indexes.

"I hate to sound like a cynic, but there are definitely a lot of buy orders sprinkled around the Street because of the end of the quarter," said Wedbush.

High oil prices continued to pressure stocks as traders doubted if a truce between rebels and the government in OPEC member Nigeria would hold. U.S. crude for November delivery settled up 13 cents at $49.64 a barrel on the New York Mercantile Exchange (search) after hitting $50.10 in the morning. Oil prices settling below that level had eased investor concerns. Rising energy prices rattle investors because of the impact on crimping corporate profits and consumer spending.

Merck's fall was the fourth biggest single-day decline of a Dow stock since at least 1993, said Dow Jones Market Data Group.

Bad economic news also weighed on stocks as the Labor Department (search) 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.

While consumer incomes rose 0.4 percent in August, spending remained flat as consumers contended with higher fuel prices throughout the summer. With consumer spending flat, economists said it will be up to businesses' capital spending to push the economy forward in the short term.

Dow component Pfizer Inc. (PFE), 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 (GSK) slipped 11 cents to $43.73, while Bristol-Myers Squibb Co. (BMY) lost 19 cents to $23.67.

Embattled mortgage giant Fannie Mae (FNM) lost $2.85 to $63.40 after the company said it would increase the frequency with which it reports to the government on its capital.

PepsiCo (PEP) 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. (NT) 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. Nortel was down 11 cents at $3.40.

Trading was heavy, with 1.8 billion shares changing hands on the New York Stock Exchange, above the 1.4 billion daily average last year. About 1.6 billion shares were traded on Nasdaq, just below the 1.69 billion daily average last year.

More than one stock rose for every one that declined on both the NYSE and Nasdaq.

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

Overseas, Japan's Nikkei stock average rose 0.4 percent. In afternoon trading, Britain's FTSE 100 closed down 0.4 percent, France's CAC-40 tumbled 1.1 percent for the session, and Germany's DAX index dropped 0.7 percent.

Reuters and the Associated Press contributed to this report.