Buffett rally ends as BofA falls under pre-deal levels

A sign for a Bank of America office is pictured in Burbank, California August 19, 2011.

NEW YORK (Reuters) - Investors who followed Warren Buffett's lead on Bank of America Corp (BAC.N) are back to where they started.

Shares of the financial giant, which spiked as much as 26 percent after the billionaire investor agreed to invest $5 billion in the company, are now trading below their pre-announcement level.

The stock fell 5.9 percent to $6.82 on Tuesday, under the $6.99 level it closed at on August 24, the day before the deal was announced.

Bank of America shares have followed the broader market, which in recent sessions has been beset by growing fears the economy will slip back into recession. Persisting concerns about the euro zone debt crisis have also kept investors uneasy, with financial stocks among the most susceptible to weakness.

The S&P 500 .SPX fell 2.8 percent on Thursday.

Despite the drop in the shares, Buffett, the chief executive of Berkshire Hathaway (BRKa.N), will easily profit from his investment. Under the terms of the deal, he has warrants to buy 700 million shares of common stock, priced at just over $7.14 per share with an unusually long 10-year exercise period.

In addition, Bank of America will also sell Berkshire 50,000 shares of cumulative perpetual preferred stock with a 6 percent annual dividend. The Dow component can buy back the investment at any time by paying Buffett a 5 percent premium.

(Reporting by Ryan Vlastelica; Editing by Theodore d'Afflisio)