Stocks fell on Thursday due to profit-taking in financials, a drag from the health-care sector and a bearish broker comment on 3M Co.

Investors were also unsettled by the implications of the Federal Reserve's action to pump another $1 trillion into the financial system, and the possibility of this stirring up inflation in the long term.

Shares of diversified manufacturer 3M , a Dow component, dropped 3.2 percent to $47.64 after a brokerage cut its price target, saying it saw near-term weakness in the company's end markets.

Shares of large pharmaceuticals, including Pfizer
and Merck , fell more than 4 percent, making the sector the top drag on the Dow industrials. A report said 2008 growth of U.S. prescription drug sales was only about one third of the growth in 2007.

Among financials, shares of JPMorgan declined 7.5 percent to $25.11 as some investors opted to book profits following the recent rally in bank shares. The KBW Bank index <.BKX>, up 11 percent on Wednesday, slid 6.2 percent.

And Citigroup was down 7.1 percent at $2.86 after it proposed an exchange offer of preferred shares that could give the U.S. government a 36 percent stake in the bank. As part of the plan, Citigroup would conduct a reverse stock split. There's so many cross currents in the market now. There is rotation on a regular daily basis. One day people look at financials favorably and having made money there, they sell and move on, said Frank Husic, chief investment officer of Husic Capital Management in San Francisco.

Yesterday was a surprise day with the Fed actions. No one in general was expecting the Fed to be as aggressive. There is a knee-jerk reaction to move to gold and inflation beneficiaries, and those groups were pretty heavily shorted groups, so there's a lot of short covering in material stocks and commodity stocks as well.

The Dow Jones industrial average <.DJI> dropped 59.90 points, or 0.80 percent, to 7,426.68. The Standard & Poor's 500 Index <.SPX> fell 5.53 points, or 0.67 percent, to 789.00. The Nasdaq Composite Index <.IXIC> lost 5.84 points, or 0.39 percent, to 1,485.38.

In economic news, the number of U.S. workers drawing continuous state unemployment benefits hit a fresh record high early this month, according to government data that highlighted the difficulties of getting new jobs in the recession-hit economy.

But a weaker dollar following the Fed's action on Wednesday also helped boost commodity prices and lift shares in the energy and materials sectors, cushioning the market.

Shares of Chevron rose 2.2 percent to $68.06 as U.S. front-month crude jumped 6.5 percent to $51.25 a barrel. Shares of U.S. Steel surged 12.5 percent to $21.56.

Also on the upside, auto parts suppliers' shares soared following a pledge by the U.S. Treasury to provide the sector up to $5 billion in financing support to help them survive a massive downturn in car sales.

Lear Corp nearly doubled to $1.33 while Tenneco leaped 31 percent to $2.70. The Dow Jones automobiles and parts index <.DJUSAP> rose 2.7 percent.

(Editing by Jan Paschal)