The report, citing sources familiar with the situation, said Department of Justice prosecutors in Washington rejected a proposed settlement worked out about two months ago between J&J and federal prosecutors in Philadelphia, and that the deal must now be renegotiated.

Officials in the Justice Department's criminal division could not be reached immediately for comment. J&J declined to comment.

The Department of Justice for years has been investigating the diversified healthcare company for alleged marketing of the anti-psychotic drug for unapproved uses, including for nursing home residents.

Individual states are also pressing similar allegations against J&J. The company in January said it will pay $158 million to settle a Texas lawsuit that accused it of improperly selling the drug to state residents on the Medicaid health program for the poor, including children.

That settlement fully resolved claims in Texas, J&J said, but does not affect other ongoing state or federal Risperdal litigation.

(Reporting By Ransdell Pierson; editing by Carol Bishopric)

• A Permanent Economic Emergency