* Jobless claims unexpectedly rise, Dec PPI also up
* Merck tumbles on disappointing drug clot trial news
* Marathon Oil rallies on plan to split off operations
* Indexes: Dow, S&P flat, Nasdaq up 0.2 pct (Updates to late morning, changes byline)
By Alina Selyukh
NEW YORK, Jan 13 (Reuters) - U.S. stocks were little changed on Thursday, paring losses after weaker-than-expected jobless claims and helped by a rise in Marathon Oil.
Contributing to the weakness was a sharp drop in shares of Merck on disappointing drug trial news. The drugmaker was the biggest percentage decliner on the S&P 500.
Weekly initial claims for unemployment benefits rose the most in six months, the Labor Department said, suggesting the jobs market still faces headwinds.
"Profit taking corrections often happen when there is a negative piece of news, and this job claims news could be one negative event that those market traders were looking for," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.
Marathon Oil Corp rose 9 percent to $44.08 after it said it would spin off its refinery and pipeline operations into a stand-alone company.
The Dow Jones industrial average declined 13.10 points, or 0.11 percent, to 11,742.34. The Standard & Poor's 500 Index rose 0.19 point, or 0.01 percent, to 1,286.15, and the Nasdaq Composite Index added 4.36 points, or 0.16 percent, to 2,741.69.
Shares of Merck & Co fell 6 percent to $34.86 after it said it would pull a blood clot drug from one study and not give it to some patients in a late-stage trial. Vorapaxar, seen as having large sales potential, was deemed inappropriate for stroke patients.
Merck's drop took a toll. The S&P Health Care index declined 0.67 percent and the ARCA Pharmaceutical index fell 0.88 percent.
In a potentially encouraging sign, however, continuing claims retreated sharply to 3.88 million from 4.13 million. Producer prices rose more than expected in December as energy and food costs surged, but underlying inflation remained subdued.
Traders were focused on the next major company due to report earnings, chipmaker Intel Corp, whose results were expected after the market closes. Its shares dipped 0.2 percent to $21.25.
JPMorgan Chase & Co, which has recently been leading gains in the banking sector, nudged 0.4 percent lower to $44.51 before its outlook and results due on Friday.
Williams-Sonoma Inc raised its fourth-quarter outlook after a strong holiday season as margins improved, but the stock fell 4 percent to $32.78 as some analysts said the company's pace of growth was moderating.
Spain and Italy followed Portugal with successful debt sales on Thursday, and investors showed growing confidence that governments would agree to new measures to stem the debt crisis.
After the sale, European Central Bank President Jean-Claude Trichet warned investors the euro zone economy still faces short-term inflationary pressures and warrants close scrutiny. (Reporting by Alina Selyukh; Editing by Kenneth Barry)