Stocks Shift Lower on Merck’s Vioxx Woes

NEW YORK – Investors sent stocks mostly lower Thursday after Merck & Co. said it would be forced to remove its best-selling Vioxx arthritis drug from the market due to serious health risks. Bargain hunting in the oversold technology sector boosted the Nasdaq to a small gain.

Merck’s troubles – Vioxx was found to carry an increased risk of heart attack and stroke – were magnified since the company is part of the Dow Jones industrials. Analysts said the Dow likely would have been flat without the news.

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“I think the Merck bombshell has certainly superseded anything else we might have gotten today,” said Bryan Piskorowski, market analyst at Wachovia Securities.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

In late morning trading, the Dow fell 80.52, or 0.8 percent, to 10,055.72. Merck represents 3.27 percent of the Dow, and nearly all the Dow’s losses could be attributed to Merck’s tumbling share price.

Broader stock indicators were mixed. The Standard & Poor’s 500 index was down 2.63, or 0.2 percent, at 1,112.17, and the Nasdaq composite index gained 2.14, or 0.1 percent, to 1,896.08.

While consumer incomes rose 0.4 percent in August, spending remained flat as consumers contended with higher fuel prices throughout the summer. A barrel of light crude was quoted at $50.05, up 54 cents, on the New York Mercantile Exchange.

With consumer spending flat, 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 percent annual rate in the second quarter, an improvement on a previous estimate of 2.8 percent but still lower than the 4.5 percent 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 sales. Merck plummeted 27 percent, or $12.03, to $33.04.

Fellow Dow component Pfizer Inc., maker of the rival Celebrex drug, gained 22 cents to $30.40 on the news, while other major pharmaceutical companies were slightly lower. GlaxoSmithKline PLC slipped 38 cents to $43.46, while Bristol-Myers Squibb Co. lost 25 cents to $23.61.

PepsiCo was up 96 cents to $49.06 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.

Embattled mortgage giant Fannie Mae lost $3.06 to $63.19 after the company said it would increase the frequency with which it reports to the government on its capital.

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. Nortel was up a penny at $3.52.

Advancing issues outnumbered decliners by nearly 5 to 3 on the New York Stock Exchange, where volume came to 424.28 million shares, compared with 413.86 million at the same point on Wednesday.

The Russell 2000 index of smaller companies was up 1.18, or 0.2 percent, at 572.25.

Overseas, Japan’s Nikkei stock average rose 0.4 percent. In afternoon trading, Britain’s FTSE 100 was down 0.1 percent, Germany’s DAX index was flat, and France’s CAC-40 slipped 0.1 percent.

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