World stock markets sank amid concerns about the length and depth of the global economic downturn and renewed fears about the financial industry.
Remarks from billionaire investor Warren Buffett, meanwhile, added to the gloom. Buffet said during an appearance on CNBC that the economy has "fallen off a cliff" over the past six months, noting that consumers have changed their habits in remarkable ways.
Before the market opened, Merck & Co. said it has offered Schering-Plough shareholders $10.50 in cash and just over half of one Merck share for each of their shares. The price represents a 34 percent premium to Schering-Plough's closing stock price on Friday.
Schering-Plough shares jumped $2.37, or 13.4 percent, to $20 in premarket trading, while Merck shares dropped $1.98, or 8.7 percent, to $20.76.
In better economic times, a big acquisition tends to galvanize the stock market. But investors hoping for signs the economy may turn around sooner rather than later have found little lately to give them any optimism. At the same time, investors have become frustrated with Washington, discouraged by a lack of evidence that the government's stimulus efforts are working. With the major indexes at levels not seen in more than 11 years, investors wonder how much lower the market has to go.
"Seeing more consolidation is good for sure, but at the same time it doesn't really address the core issues of what is going on in the marketplace," said Nicholas Colas, chief market strategist at BNY ConvergEx. "It's more of a nice to happen than need to have."
Ahead of the market's open, Dow Jones industrial average futures fell 109, or 1.63 percent, to 6,565. Standard & Poor's 500 index futures fell 12, or 1.74 percent, to 675.80, while Nasdaq 100 index futures fell 14.50, or 1.35 percent, to 1,062.
The deal between Merck and Schering-Plough comes just six weeks after Pfizer Inc. agreed to pay $68 billion for fellow drugmaker Wyeth. Analysts have forecast increased consolidation in the pharmaceutical industry for some time, as companies struggle with slumping sales and fierce competition. So Monday's announcement didn't come as much of a surprise, Colas said, which could be part of the reason why there wasn't much spillover in the broader market.
More bad news came from newspaper publisher McClatchy Co., which plans to eliminate 1,600 jobs, or 15 percent of its work force, as it battles declining advertising revenue. The owner of The Miami Herald and The Sacramento Bee also plans to lower salaries across its operations.
News of layoffs has been unrelenting this year, with major corporations across a broad swath of industries slashing jobs amid declining sales and withering profits. Rising unemployment fuels an ugly cycle: Fewer people working means more people have less to spend, which in turn hurts companies' profits further, often leading to more layoffs.
The financial industry continued to show signs of weakness Monday. Capital One Financial said it will slash its dividend 87 percent to 5 cents to help preserve capital. Many financial firms have cut dividends in recent weeks, including JPMorgan Chase & Co. and Wells Fargo & Co., in an effort to save cash as a safety net against future losses.
The plight of the nation's automakers will also remain a top focus for investors this week. Members of the Obama administration's auto task force are scheduled to meet with General Motors Corp. and Chrysler LLC executives Monday in the Detroit area and tour their facilities.
The government could recall its $17.4 billion in loans to GM and Chrysler if they fail to sign deals for debt restructuring and other concessions from stakeholders by March 31. GM and Chrysler are seeking $21.6 billion in additional aid to execute turnaround plans submitted last month.
On Friday, stocks ended an erratic session slightly higher after investors digested news that 651,000 jobs were lost last month. The unemployment rate jumped to a 25-year high of 8.1 percent.
Both the Dow and the S&P 500 have fallen more than 24 percent this year. The Dow is at its lowest level since the spring of 1997, and the S&P 500 is at its lowest point since September 1996.
The Nasdaq, meanwhile, is at a six-year low.
Bond prices were mixed early Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 2.86 percent from 2.89 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.21 percent from 0.18 percent late Friday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude for April delivery rose 30 cents to $45.82 a barrel in electronic premarket trading on the New York Mercantile Exchange.
Overseas markets retreated after the World Bank forecast that the global economy will shrink this year for the first time since World War II. Japan's Nikkei stock average fell 1.21 percent, while Hong Kong's Hang Seng index dropped 4.84 percent.
In Europe, news that the British government was taking a majority stake in Lloyds Banking Group PLC rattled markets. In afternoon trading, Britain's FTSE 100 was down 1.68 percent, Germany's DAX index fell 1.57 percent, and France's CAC-40 fell 2.05 percent.