* Banking stocks head for bear territory * German Chancellor Merkel proposes greater fiscal union * Facebook hits new intraday low * Dow off 0.5 pct, S&P down 0.6 pct, Nasdaq off 0.4 pct By Chuck Mikolajczak NEW YORK, June 4 U.S. stocks extended their most recent selloff on Monday as investors reacted to the latest indications o f an economic slowdown and looked ahead to events this week that could help ease Europe's debt crisis. The decline extended Friday's steep drop that wiped out the Dow industrials' gain for the year, although additional declines may lack intensity after indexes fell below key technical support levels. The benchmark S&P 500 is on track for its fourth straight session of declines. Signs of economic weakness around the globe and Europe's intensifying debt crisis have rattled investors, who have been dumping riskier investments like commodities and equities for the perceived safety of higher-rated government bonds. The S&P 500 dropped 2.5 percent on Friday, its biggest drop since Nov. 9, with economically sensitive sectors such as banks and energy among the hardest hit, reflecting investor sentiment about the stability of the global economy. "It's a continuation of the flight to safety, or flight to quality, that we have observed over the last week or so," said Peter Jankovskis, co-chief investment officer of OakBrook Investments LLC in Lisle, Illinois. "Frankly, at this point, the market probably is ready for a rally with the right catalyst." Friday's selloff pushed the S&P 500 below its 200-day moving average, seen as a key support level. U.S. banking stocks are sliding into a bear market as Europe's debt crisis pressures the sector. The KBW Bank index , which measures the performance of 24 U.S. banks, is down more than 18 percent from its intraday high in March. In Monday afternoon trading, the index was down 2.4 percent for the day. Morgan Stanley has come under pressure as bond markets treat the bank as a junk-rated company, and the higher borrowing costs could already be putting it at a disadvantage even before an expected ratings downgrade. The bank's stock is off 41.9 percent since late March. On Monday, Morgan Stanley's stock was down 3.3 percent at $12.31. Shares of social networking company Facebook Inc kept s truggling to find solid footing, hitting a new low of $26.44 since its debut slightly more more than two weeks ago. The stock was down 3.7 percent at $26.67. The Dow Jones industrial average dropped 59.04 points, or 0.49 percent, to 12,059.53. The Standard & Poor's 500 Index lost 7.74 points, or 0.61 percent, to 1,270.30. The Nasdaq Composite Index declined 11.48 points, or 0.42 percent, to 2,736. In a potential boost for markets looking for measures to end the debt crisis that has been at the root of investor angst, German Chancellor Angela Merkel is pressing for much more ambitious measures, including a central authority to manage euro-area finances and major new powers for the European Commission, European Parliament and European Court of Justice. Spanish Prime Minister Mariano Rajoy is advocating a direct European rescue for the country's banks with moral support from the European Commission, but Germany appeared cool to such a move for the euro zone's fourth biggest member. Economic data showed orders for manufactured goods dropped 0.6 percent in April, its third decline in four months and confounding expectations calling for a 0.2 percent gain. An experimental Bristol-Myers Squibb drug helped shrink tumors in patients with advanced melanoma, kidney and lung cancers in a preliminary trial, raising hopes for yet another drug that can wake up the immune system and train it to attack cancer cells. The stock was up 0.4 percent at $33.46. Medtox Scientific Inc O> surged 35.4 percent to $26.68 after Laboratory Corp of America Holdings said it will acquire its smaller rival for $27 per share in cash.