The Dow industrials fell on Thursday, hurt by a slide in Merck shares, but the market was near 28-month highs as investors saw stocks' upward trend continuing despite disappointing jobless claims data.

There's an unwillingness to be too negative ahead of earnings, said Michael James, senior trader at Wedbush Morgan in Los Angeles.

He said traders are focused on Intel Corp and JPMorgan Chase & Co , two Dow components reporting results Thursday and Friday, respectively. Earnings from S&P 500 companies are expected to rise 32 percent in the fourth quarter compared to a year ago.

Merck & CO dropped nearly 7 percent to $34.64 after it stopped giving a blood clot preventer, one of its most important experimental drugs, to some patients.

The S&P healthcare index <.GSPA> fell 0.7 percent.

Weekly initial jobless claims jumped to their highest level since October last week while food and energy costs lifted producer prices in December, pointing to headwinds for an economy that has shown fresh vigor.

However, a surge in exports to their highest level in two years helped narrow the U.S. trade deficit in November, an encouraging sign for positive surprises in the current earnings season.

The Dow Jones industrial average <.DJI> dropped 33.68 points, or 0.29 percent, to 11,721.76. The Standard & Poor's 500 Index <.SPX> fell 2.24 points, or 0.17 percent, to 1,283.72. The Nasdaq Composite Index <.IXIC> dipped 1.05 points, or 0.04 percent, to 2,736.28.

The benchmark S&P 500 has gained 22.1 percent since the start of September.

Intel, which makes chips used in many consumer electronics devices, dipped 0.3 percent to $21.23 before its earnings report due after the closing bell.

JPMorgan fell 0.6 percent to $44.45 ahead of its results, expected before the market's open on Friday. Its shares have risen 4.9 percent so far this year.

Marathon Oil Corp gained 6.4 percent to $43.11 after it said it would spin off its refinery and pipeline operations into a stand-alone company.

Easing recent worries about the credit crisis in Europe, Spain and Italy followed Portugal with successful debt sales on Thursday. The euro rose 1.7 percent against the U.S. dollar, its best day in six months.

(Reporting by Rodrigo Campos; additional reporting by Pedro Nicolaci da Costa; Editing by Kenneth Barry)

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