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"I think the Merck bombshell has certainly superseded anything else we might have gotten today," said Bryan Piskorowski, market analyst at Wachovia Securities.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

According to preliminary calculations, the Dow fell 55.97, or 0.6 percent, to 10,080.27. Merck represents 3.27 percent 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 percent, at 1,114.58, and the Nasdaq composite index gained 2.90, or 0.2 percent, 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 percent — the sixth consecutive September loss for the index — while the S&P 500 gained 0.9 percent and Nasdaq added 3.2 percent.

In other economic news, consumer incomes rose 0.4 percent in August, but spending remained flat.