U.S. stocks dropped after a government report showed inflation is picking up, reinforcing concern the Federal Reserve will raise borrowing costs next month.

Benchmark indicators have erased their gains for the year as increases in oil prices and interest rates may crimp corporate profit and economic growth, some investors have said.

The Dow Jones industrial average fell 34.42, or 0.3 percent, to 10,010.74. The Standard & Poor's 500-stock index dropped 0.84, or 0.1 percent, to 1096.44.

The Nasdaq composite index finished little changed, rising 0.44, to 1926.03. It had declined four of the past five sessions. Level 3 Communications and Network Appliance led the gains.

Producer prices rose 0.7 percent in April, more than economists had predicted and the biggest increase since March 2003. A separate report showed higher-than-expected jobless claims. The number of Americans filing initial claims for unemployment insurance rose to 331,000 last week, holding close to the lowest since November 2000. Also, retail sales fell 0.5 percent in April.

Crude oil futures rose for a third day, closing at the highest in 21 years of New York trading, on concern economic growth is causing a surge in demand that strains global production.

Altria Group, the parent of Philip Morris, fell 90 cents, to $48.90. The 1.8 percent drop was the steepest in the Dow average. The Florida Supreme Court said it would review a decision that voided a $145 billion award against cigarette makers.

Pfizer fell 31 cents, to $35.40, after agreeing to plead guilty to charges that it misbranded the epilepsy drug Neurontin.

Tiffany & Co., the largest U.S. luxury jewelry retailer, declined $2.82, to $34.08. The 7.6 percent drop was the steepest in the S&P 500. Tiffany lowered its annual revenue forecast, saying that sales will slow and that higher precious-metal costs are also narrowing profit margins.

Walt Disney Co. shares rose 30 cents, to $23.30, as second-quarter profit was $537 million on sales of $7.19 billion. Analysts polled by Thomson had expected sales of $6.85 billion.

Other Indicators

* The New York Stock Exchange composite index fell 16.56, to 6294.58; the American Stock Exchange index rose 6.04, to 1166.22; and the Russell 2000 index of smaller-company stocks fell 1.82, to 547.17.

* Declining issues outnumbered advancing ones by 9 to 8 on the NYSE, where trading volume fell to 1.41 billion shares, from 1.69 billion on Wednesday. On the Nasdaq Stock Market, decliners outnumbered advancers by 9 to 7 and volume totaled 1.5 billion, down from 1.87 billion.

* The price of the Treasury's 10-year note fell $3.44 per $1,000 invested, and its yield rose to 4.86 percent, from 4.81 percent on Wednesday.

* The dollar rose against the Japanese yen and the euro. In late New York trading, a dollar bought 114.48 yen, up from 113.19 late Wednesday, and a euro bought $1.1823, down from $1.1918.

* Light, sweet crude oil for June delivery settled at $41.08, up 31 cents, on the New York Mercantile Exchange.

* Gold for current delivery fell to $374.80 a troy ounce, from $377.40 on Wednesday, on the New York Mercantile Exchange's Commodity Exchange.