U.S. stocks fell, extending the worst weekly slump in the Standard & Poor’s 500 Index since November, after Warren Buffett said the economy “has fallen off a cliff” and the World Bank predicted a global contraction.

Aflac Inc., the largest provider of supplemental insurance, dropped 13 percent after UBS AG recommended selling the shares. Merck & Co. sank 10 percent, dragging down the Dow Jones Industrial Average, after agreeing to buy Schering-Plough Corp. for $41.1 billion.

The Standard & Poor’s 500 Index fell 0.6 percent to 679.51 at 1:22 p.m. in New York after losing as much as 1 percent and climbing 1.7 percent. It swung between gains and losses at least 25 times. The Dow average retreated 59.58 points, or 0.9 percent, to 6,567.36.

“Uncertainty reigns,” said David Sowerby, who helps oversee about $100 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan. “What’s the floor on the S&P? It’s never ending.”

U.S. stocks last week posted the biggest decline in three months after American International Group Inc. reported a $61.7 billion loss and concern increased that General Electric Co. will be stripped of its top credit rating. General Motors Corp. sank 36 percent, the most since October, after its auditor said the automaker may not survive.

Aflac lost 13 percent to $11.65 after UBS reduced its recommendation to “sell” from “neutral,” saying the shares are expensive relative to other life insurance companies.

Second-Biggest Drugmaker

Schering-Plough surged 15 percent to $20.20. Merck lost 10 percent, the most in the Dow average, to $20.43. The buyout would make Merck the second-biggest U.S. drugmaker and give it full rights to cholesterol pills Zetia and Vytorin and experimental treatments for blood clots, asthma and schizophrenia.

The deal may spur other industry takeovers, said David Moskowitz, an analyst with Caris & Co. Pfizer Inc. offered to buy Wyeth in January for $68 billion and Roche Holding AG raised its Genentech Inc. bid to $45.7 billion last week.

Buffett, whose Berkshire Hathaway Inc. posted its worst results ever in 2008, told CNBC today that the economy “has fallen off a cliff” and that efforts to stimulate recovery may lead to inflation higher than the 1970s.

The global economy is likely to shrink for the first time since World War II and trade will decline by the most in 80 years, the World Bank said yesterday. Its assessment is more pessimistic than an International Monetary Fund report in January predicting 0.5 percent global growth this year.

‘Volatile Markets’

“We’re going to continue to see very volatile markets,” said Ron Rimkus, a money manager for Raleigh-based BB&T Asset Management, which oversees $17 billion. “There’s nothing good going on in terms of the economy.”

The S&P 500 Financials Index rose 2.8 percent, rebounding from the lowest closing level in almost 17 years. The 84 percent plunge in the measure from its February 2007 high has surpassed the crash in technology shares after March 2000.

Bank of America Corp. added 15 percent, the biggest gain in the Dow average, to $3.62 after a person familiar with the matter said it will sell $8.5 billion in debt backed by the Federal Deposit Insurance Corp.

“It’s a good sign that a large financial institution which is really critical to lending is going ahead with plans to sell debt,” said Liam Dalton, who oversees about $1.1 billion as the New York-based chief executive officer of Axiom Capital Management. “It reminds investors that if we can get some normal functioning in the credit market, we can get some stability of the real economy and overall market.”

‘Earnings Powerhouse’

Bank of America will be an “earnings powerhouse” once the economy recovers, Barron’s said in an article published March 7.

General Electric Co. climbed 7.2 percent to $7.57. Its finance arm hired five banks to manage a bond sale under the U.S. government’s Temporary Liquidity Guarantee Program.

Wells Fargo & Co. increased 17 percent to $10.09 after Buffett told CNBC that business at the fourth-largest U.S. bank in three years looks “better than ever.”

Stem-cell companies surged after Harold Varmus, co-chair of a science advisory group to the president, said Barack Obama will reverse the U.S. government’s ban on funding stem-cell research today. Geron Corp. added 15 percent to $4.45. StemCells Inc. climbed 39 percent to $1.92.

A gauge of 39 energy companies in the S&P 500 rose 1.3 percent, second-most among 10 industries behind financials, as oil jumped to a two-month high.

OPEC Cut?

Halliburton Co. advanced 5.9 percent to $16.02. Nabors Industries Ltd. added 5.9 percent to $9.09. Exxon Mobil Corp. climbed 1 percent to $64.68.

Crude oil for April delivery rallied as much as 7.3 percent to $48.83 a barrel in New York on speculation that the Organization of Petroleum Exporting Countries will decide to reduce output when ministers gather in Vienna on March 15.

Benjamin Graham, the father of value investing and mentor of Buffett, would find most U.S. stocks expensive even after the S&P 500 dropped 56 percent in 17 months.

Graham measured equities against a decade of profits to smooth out distortions, a method that shows the S&P 500 trading at 13.2 times earnings, according to data compiled by Yale University Professor Robert Shiller. At the bottom of the three worst recessions since 1929, the average ratio fell below 10. To reach that level, the S&P 500 would sink another 27 percent.

Investors who valued companies based on earnings or forecasts covering just one year have been burned as equities kept dropping. The S&P 500 fetched 16.2 times its companies’ 12- month profits on Jan. 7, the lowest since at least 1998, according to data compiled by Bloomberg. The index has since declined as much as 25 percent to a 12-year low.

The global economy is likely to shrink for the first time since World War II and trade will decline by the most in 80 years, the World Bank said yesterday. Its assessment is more pessimistic than an International Monetary Fund report in January predicting 0.5 percent global growth this year.