U.S. stocks fell as Yahoo dropped the most in almost two years after Microsoft Corp. abandoned its $50 billion bid for the company and Countrywide Financial Corp. tumbled on concern its suitor will abandon its pending takeover.

Microsoft dropped its three-month-old bid to buy internet firm Yahoo on Saturday, after the two sides failed to agree on an acceptable sale price. Yahoo shares tumbled as much as 16 percent after analysts advised investors to sell its shares.

Shares of Countrywide , the nation's biggest mortgage company, declined after Friedman Billings Ramsey & Co. analyst Paul Miller said Bank of America Corp. is likely to negotiate a lower price for Countrywide but should just consider abandoning its $4 billion bid. Countrywide debt was cut below investment grade by Standard & Poor's and its loan portfolio is reported to prove a drag on earnings.

The S&P 500 dropped for the first time in three days, shedding 5.48 points, or 0.4 percent, to 1,408.42 at 3:28 p.m. in New York. The Dow Jones Industrial Average dropped 82.96, or 0.6 percent, to 12,975.24. The Nasdaq Composite Index slipped 12.46, or 0.5 percent, to 2,464.53.

Yahoo, the most-visited Web site, tumbled $4.28 to $24.39. The world's largest software maker walked away from talks after Yahoo rejected Microsoft's offer to increase its original $44.6 billion bid by about $5 billion to $33 a share. Yahoo shares were downgraded to sell'' at Citigroup Inc. and other firms.

Microsoft shares shed 14 cents to $29.10. Google, owner of the most-used Internet search engine, gained $11.01 to $592.30.

Countrywide lost 95 cents to $5.03. Bank of America will probably reduce its per-share offer to the ``$0 to $2 level'' from about $7, Friedman Billings Ramsey analyst Paul Miller wrote in a research note.

The second-biggest U.S. bank by assets may have to write down the value of Countrywide's loans by $20 billion to $30 billion when it closes the takeover deal, Miller wrote.

Bank of America shares dropped 81 cents to $38.98.