Wall Street Rises Late On Talk Of Bond Insurer Bailout

NEW YORK: US stocks rallied late on Friday on news that banks were near an agreement to bail out bond insurer Ambac Financial, a deal that could prevent further damage to the banking industry and credit markets.

After trading in negative territory for most of the session, stocks turned positive in the last half hour after CNBC television reported a bank rescue may come as soon as next week.

A source later told that a rescue may be announced on Monday or Tuesday. The triple-A credit ratings of Ambac and rival MBIA have come under threat because of their exposure to risky mortgage bonds. That has forced banks to write down the value of holdings insured by the two companies. Earlier, financial shares had led the decline after Merrill Lynch & Co recommended investors sell Fannie Mae and Freddie Mac, the biggest US home financing companies in anticipation of further deterioration in financial markets.

News of the potential rescue plan caused the Dow to swing from about an 80-point loss to a 96-point gain by the close, led by a reversal in financial shares. "The Ambac news turned the entire stock and index futures markets around. The rally almost fed on itself as traders looked to get long wherever they could, which would show that many were taken by surprise by the news and velocity of the rally," said Joe Kinahan, chief derivatives strategist at online brokerage thinkorswim in Chicago. The Dow Jones industrial average rose 96.72 points, or 0.79 percent, to end at 12,381.02. The Standard & Poor's 500 Index gained 10.58 points, or 0.79 percent, to 1,353.11.

The Nasdaq Composite Index added 3.57 points, or 0.16 percent, to 2,303.35. For the week, the Dow ended up 0.3 percent and the S&P 500 gained 0.2 percent, but the Nasdaq fell 0.8 percent. Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles, said the CNBC news triggered "significant short covering in financials," but he added: "Who knows if the news of the plan is true? ... (But) the market is pretty thin, so it's pretty easy to get things pushed around to the upside."

Volume was about 1.4 billion, down from last year's daily average of 1.9 billion on the New York Stock Exchange, which also reported at the close that short interest rose in the first part of February to a fresh record. Shares of Ambac, which had been lower for most of the day, surged 16 percent to end at $10.71, while MBIA shares gained 2.4 percent to $12.18, both on the New York Stock Exchange. The S&P financial index rose 1.6 percent, while an index of bank shares climbed 1.7 percent.

Fannie Mae and Freddie Mac shares sharply pared losses but still ended lower on the day. Fannie Mae shares were down 0.9 percent at $28.72 at the close, while Freddie Mac shares were down 4.1 percent at $26.61. The Merrill downgrade was the latest in a long series of bad news for the financial sector where investors are reacting to woes stemming from defaults in the subprime mortgage market that have led to much stricter lending conditions.

On the Nasdaq, Express Scripts Inc rose 2.4 percent to $66.31 after the pharmacy benefits manager raised its 2008 profit forecast due to favorable trends. Nasdaq volume was fairly brisk, with about 2.3 billion shares traded, above last year's daily average of 2.17 billion. Advancing stocks outnumbered declining ones on the NYSE by 3 to 2, while on the Nasdaq, the opposite trend held, with about 4 stocks falling for every 3 that rose.

US stocks erase early losses, charge higher

NEW YORK: Wall Street ended a frenetic January with a huge advance Thursday after investors set aside worries about bond insurers and grew more optimistic that the Federal Reserve's interest rate cuts will indeed help lift the economy. The Dow Jones industrials rose more than 200 points but suffered its worst January in eight years.

The day's trading emerged as a microcosm of the entire month, with the Dow first falling more than 190 points, and then by late afternoon, soaring more than 250. It capped a January that saw frequent triple-digit moves in the blue chips as investors alternately anguished about the fallout from the housing and mortgage crisis and celebrated any news that indicated the damage might limited.

Still, the major indexes ended the month with heavy losses, evidence of how dejected investors have become. The Fed's 1.25 percentage points in interest rate cuts, designed to stave off a recession, ultimately gave Wall Street some reassurance that the economy might soon show signs of recovery _ although the market still gyrated after the latest 0.50 percentage point cut on Wednesday.

Bond insurer MBIA Inc. also mollified Wall Street Thursday when its chief executive, Gary Dunton, told investors he is confident the company can retain its crucial AAA credit rating and that MBIA will still be able to raise fresh capital.

The notion that bond insurers could perhaps avoid being felled by a rush of claims over swaths of bad debt offered solace for investors who have for months worried about the fallout from a sharp pullback in the housing market and the resulting souring mortgage debt.

``Today is really more of a relief rally because the Fed did what the Street wanted. They did what was expected of them and the MBIA news relieved the fears of some investors,'' said Ryan Detrick, strategist at Schaeffer's Investment Research in Cincinnati. ``For once there's actually maybe some calm coming into Wall Street.''

The Dow rose 207.53, or 1.67 percent, to 12,650.36. For the month, the Dow lost 4.63 percent _ its worst January since losing 4.84 percent at the start of 2000. January's pullback was the steepest seen in any month since December 2002.

Broader stock indicators also jumped Thursday. The Standard & Poor's 500 index rose 22.74, or 1.68 percent, to 1,378.55, and the Nasdaq composite index rose 40.86, or 1.74 percent, to 2,389.86.

The Russell 2000 index of smaller companies rose 17.81, or 2.56 percent, to 713.30.

Government bond prices rose. The 10-year Treasury note's yield, which moves opposite its price, fell to 3.59 percent from 3.63 percent late Wednesday.

The dollar was mixed against most major currencies, while gold prices rose.

Oil prices slid. Light, sweet crude for March delivery fell 58 cents to settle at $91.75 a barrel on the New York Mercantile Exchange.

The rebound in stocks came even as reports on sluggish consumer activity and higher jobless claims reflected weakness in the economy. However, along with the Fed's rate decision, Wall Street this week awaited the Labor Department's January report on payrolls and unemployment. Due Friday morning, the reading could shape sentiment because a strong job market is considered crucial to maintaining consumer spending, which accounts for more than two-thirds of U.S. economic activity.

MBIA's comments about its access to capital and the possibility of raising more seemed to dampen unease about recent moves by rating agencies relating to bond insurers. Moody's Investors Service and Standard & Poor's have said they are reviewing ratings on MBIA and other bond insurers.

MBIA, which had been down sharply after reporting a $2.3 billion fourth-quarter loss amid heavy write-downs, closed up $1.54, or 11 percent, to $15.50.

But MBIA's comments won't erase all of Wall Street's concerns about the credit markets.

``It seems to be a tug-of-war between 'Is this a systemic problem?' or 'Is this more of a cyclical problem that can be corrected with sort of the standard fare of monetary stimulus?''' said Kevin Gaughan, portfolio manager and equity strategist at Wells Capital Management in Milwaukee.

Economic readings could indicate how pervasive the troubles are. On Thursday, the Commerce's Department's personal consumption and income report for December underscored the fact that the economy continued to weaken as 2007 ground to its end. Consumer spending in December _ the year's peak shopping season _ had its weakest performance since September 2006. The report's price index for personal consumption expenditures, a gauge of inflation closely monitored by the Fed, rose 0.2 percent in December from November levels. The department said personal incomes rose 0.5 percent last month.

Separately, the Labor Department reported a startling jump of 69,000 jobless claims in the latest week, pushing the total to 375,000. That the highest level since early October and the largest increase since September 2005. Thomson/IFR had forecast a gain of just 14,000 new claims.

Thursday's stock market rally, helped gains in beaten-down sectors such as financials and home builders, could relate in part to short sellers maneuvering positions on the final session of the month. Traders who sell a stock ``short'' bet its price will fall and are forced to step in and buy the stock should it begin to rise. That purchasing can exacerbate rallies.

Among financials, Citigroup Inc. rose 61 cents, or 2.2 percent, to $28.17, while homebuilder KB Home rose $2.32, or 9.2 percent, to $27.50.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where consolidated volume totaled 5.22 billion shares, compared with 4.64 billion shares seen Wednesday.