Updated from 4:07 p.m. EDT

Stocks wilted in the final hour of trading Thursday as investors balked amid high oil prices and mixed economic data and took the market to its lowest closing levels in nearly two months ahead of a mostly solid second-quarter report from IBM ( IBM).

The Dow Jones Industrial Average lost 45.64 points, or 0.45%, to 10,163.16; the S&P 500 dipped 4.78 points, or 0.43%, to 1106.69; and the Nasdaq was down 2.17 points, or 0.11%, to 1911.71. The 10-year Treasury note traded flat in price to yield 4.48%, and the dollar was slightly higher against the yen and euro.

Volume was down from the previous session but still higher than a typical day of summer trading, thanks in part to the first blockbuster day of second-quarter earnings announcements. More than 1.4 billion shares traded on the New York Stock Exchange, where advancers outnumbered decliners by about 5 to 4. On the Nasdaq, over 1.6 billion shares changed hands, and advancers and decliners were about even.

IBM's profits jumped over 17%, beating Wall Street's estimates and showing that corporate tech spending rose at a healthy clip for the quarter. The tech giant said its net income was $2.0 billion, or $1.16 a share, from $1.7 billion, or 97 cents a share, in the same quarter last year.

"There are a lot of questions swirling around the tech sector now after some of the earnings warnings in software," said Adolfo Rueda, senior technical analyst with Shields & Co., noting that the positive report from IBM could provide investors with the answer they were looking for.

On the economic front, inflation concerns eased after the government reported the producer price index (or PPI) sank unexpectedly by 0.3% in June -- economists estimated it would gain 0.2% -- after jumping 0.8% in May. The core rate, excluding volatile food and energy prices, slowed from a 0.3% increase to a 0.2% one.

Separately, Wall Street was surprised by a Fed report saying that industrial production waned in June by 0.3% after rising a revised 0.9% in May. Economists had expected production to rise by 0.1%. Factories operated at 77.2% of capacity for the month, down from a revised 77.6% in May.

But in a more recent report on the industrial sector, the Philadelphia Fed said its regional manufacturing index jumped to 36.1 in July after economists had predicted that June's reading of 28.9 would decline to 25 for the latest month.

On the labor front, the government said initial jobless claims rose by 40,000 in the week ended July 10, to 349,000 from the revised 309,000 reported for the previous week. The report came in higher than Wall Street's consensus estimate by 9,000 claims, and it confirmed that last week's steep drop in claims was probably an aberration.

In May, the government said growth in business inventories slowed to 0.4% from the 0.5% reported for April. Economists had expected a pickup to 0.6%.

"The market was hoping for something more than middle-of-the-road, and what we really got was middle-of-the-road," said Paul Nolte, director of investments at Hinsdale Associates. "What continues to concern me here is volume. Yesterday's volume was high and it came on a down day, meanwhile Friday's rally was one of the worst volume days of the year, and it came on an up day. Our betting is that the market is more likely to go down from here than up."

Nymex crude for August delivery lost 22 cents, or 0.5%, to $40.93 as traders took small profits after yesterday's 4% spike. Supply concerns sparked by a pair of U.S. inventory reports were behind Wednesday's action. On Thursday, suspected sabotage at a Northern Iraqi pipeline kept the upward pressure from dissipating. Meanwhile, a meeting of OPEC ministers scheduled for Wednesday in Vienna might be canceled.

Violence continued for the second day in a row in Iraq, where a car bomb exploded near police and government buildings in the western city of Haditha, killing 10 Iraqis and wounding 27 others, according to the Associated Press.

Among Thursday's early earnings, Nokia ( NOK) reported an uneventful second quarter but warned that profit in the current period would be depressed by the discounts it was forced to implement to recapture market share. Its stock closed down $1.79, or 12.5%, to $12.45.

Citigroup ( C) said second-quarter earnings fell more than 70% due to a legal reserve recorded to cover settlements with shareholders of WorldCom and other matters. Before the charge, earnings rose $5.3 billion, or $1.02 a share, about 5 cents a share ahead of analyst forecasts. Its stock closed down 89 cents, or 2%, to $44.21.

Southwest Airlines ( LUV) was trading lower after saying second-quarter earnings were $113 million, or 14 cents a share, slightly below analysts' forecasts. The company blamed higher fuel costs and labor-related issues. The stock lost 31 cents, or 2.1%, to $14.75.

In other corporate news, Harrah's Entertainment ( HET) said it would acquire Caesars Entertainment ( CZR) for $5.2 billion in cash and stock, creating the world's largest casino operator.

Shares of Harrah's closed down $3.07, or 6%, to $47.91, while Caesars was down 95 cents, or 5.9%, to $15.05.

Overseas markets were mixed, with London's FTSE 100 closing down 0.7% to 4341 and Germany's Xetra DAX falling 1.3% to 3847. In Asia, Japan's Nikkei rose 0.5% to 11,409, while Hong Kong's Hang Seng added 0.1% to 11,939.

Before Friday's opening bell, second-quarter earnings releases are due out from National City ( NCC), expected to report profits before special items of 69 cents a share, down from last year's 99 cents a share; KeyCorp ( KEY), expected to report earnings of 56 cents a share, up from last year's 53 cents a share; WW Grainger ( GWW), expected to report earnings of 69 cents a share, up from last year's 60 cents a share; and Delphi ( DPH), expected to report earnings of 28 cents a share, up from last year's 16 cents.

Also before the bell, the government will report the results of the consumer price index in June. The index is expected to increase 0.2%, down from May's 0.6% reading. The core index is expected to hold steady and match the overall results, rising by 0.2%.

At 9:45 a.m. EDT, the University of Michigan is scheduled to release the preliminary report on its consumer sentiment index in July, expected to show a jump to 97 from the final June reading of 95.6.