Bank of America jumped 20 percent after a person familiar with the matter said it will sell debt backed by the Federal Deposit Insurance Corp. Halliburton Co. and Nabors Industries Ltd. increased more than 5.7 percent as oil reached $48.83 a barrel. Merck & Co. sank 7.3 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 0.2 percent to 681.75 at 2:10 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 26 times. The Dow average retreated 13.62 points, or 0.2 percent, to 6,613.32.

“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.”

Futures on the S&P 500 decreased as much as 2.4 percent before the stock market’s official open at 9:30 a.m. in New York after Buffett’s comments and the World Bank’s prediction that the global economy will contract this year.

Bank of America added 20 percent, the biggest gain in the Dow average, to $3.76 following the Bloomberg News story on the offering. Bonds guaranteed through the FDIC’s Temporary Liquidity Guarantee Program are rated Aaa by Moody’s Investors Service and AAA by S&P, their highest rankings.

‘Earnings Powerhouse’

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

General Electric Co. climbed 8.1 percent to $7.63. Its finance arm hired five banks to manage a bond sale under the U.S. government’s Temporary Liquidity Guarantee Program.

The S&P 500 Financials Index rose 4.4 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.

Wells Fargo & Co. increased 21 percent to $10.38 after Buffett told CNBC that business at the fourth-largest U.S. bank in three years looks “better than ever.” Buffett’s Berkshire Hathaway Inc. owns 6.9 percent of the bank’s stock.

A gauge of 39 energy companies in the S&P 500 rose 1.5 percent, second-most among 10 industries behind financials. Halliburton advanced 6.1 percent to $16.04. Nabors added 5.7 percent to $9.07.

OPEC Cut?

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.

Schering-Plough surged 17 percent to $20.55. Merck lost 7.3 percent, the most in the Dow average, to $21.09. 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.

Stem-Cell Ban

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 18 percent to $4.58. StemCells Inc. climbed 43 percent to $1.98.

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.

‘Uncertainty Reigns’

“Uncertainty reigns,” David Sowerby, who helps oversee about $100 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan, said today before the market rebounded. “From continued concern with the economy and autos to financials and earnings. 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, Buffett said the economy is in “shambles” and concern increased that GE 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.

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.

 SOURCE: Bloomberg