Tuesday 12 February 2008

U.S. Stocks Rise After Buffett Offers to Help Bond Insurers

U.S. stocks rose for a second day, led by financial shares, on expectations Warren Buffett, the world's No. 1 investor, will help calm credit markets by offering to shore up bond insurers' finances.

Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co., the three largest U.S. banks, climbed after Buffett said he's willing to take on $800 billion in municipal bond obligations in an interview with CNBC. Monsanto Co., the world's biggest seed producer, advanced for a third day on an increased profit forecast.

The Standard & Poor's 500 Index added 20.93 points, or 1.6 percent, to 1,360.06 at 11:04 a.m. in New York. The Dow Jones Industrial Average advanced 210.13, or 1.7 percent, to 12,450.14. The Nasdaq Composite Index climbed 27.51, or 1.2 percent, to 2,347.57. Almost six stocks rose for every one that fell on the New York Stock Exchange. Shares in Europe and Asia also gained.

``It's another potential solution to some of the credit problems,'' Mark Bronzo, who helps manage $11 billion at Security Global Investors in Irvington, New York, said of Buffett's offer. ``That's why the markets are responding well.''

Concern that bond insurers don't have enough money to pay claims on the $2.4 trillion in assets they guarantee has contributed to a 6.8 percent drop in S&P 500 financial shares in 2008. MBIA Inc., the largest bond insurer, lost 80 percent of its value in the last year before today, and smaller rival Ambac Financial Group Inc. slumped 88 percent, on concern that the companies will lose their AAA credit ratings.

Buffett's Offer

Citigroup added 95 cents to $26.76. Bank of America rallied $1.17 to $43.31. JPMorgan climbed $1.07 to $44.42. Bear Stearns Cos., the fifth-biggest U.S. securities firm, increased $2.15 to $81.91.

Buffett said he offered to take on the municipal-bond liabilities of MBIA, Ambac Financial and FGIC Corp. Buffett's Berkshire Hathaway Inc. would provide so-called reinsurance for the debt, he said in an interview with CNBC television.

One company turned down the offer and the two others haven't responded, Buffett, chairman of Berkshire Hathaway Inc., told CNBC.

MBIA slipped 60 cents to $12.98. Ambac lost 1 cent to $10.47. Buffett's offer doesn't include the insurers' subprime- related obligations.

Financial shares also climbed on plans to help delinquent homeowners avoid foreclosure. Bank of America, Citigroup and four other U.S. lenders will announce a plan to offer a 30-day freeze on home foreclosures while loan modifications are considered, two people said on condition of anonymity.

Monsanto, Schlumberger

Monsanto rallied $4.73, or 4.2 percent, to $118.76 after raising its 2008 profit forecast on higher demand for weed killer and genetically modified corn and soybeans. Profit in the year ending Aug. 31 will increase to $2.70 to $2.80 a share, 20 cents above the range of a Jan. 3 forecast.

Schlumberger Ltd. advanced $2.93 to $83.42 after Bear Stearns raised its recommendation on the world's largest oilfield-services provider to ``outperform'' from ``peer perform,'' saying the company's offshore drilling and exploration make it ``well positioned for the next phase of the oilfield service business cycle.''

Schering-Plough Corp. gained $1.28 to $21.90. The maker of Vytorin and Zetia cholesterol pills reported fourth-quarter profit, excluding some items, of 52 cents a share, beating the 27-cent average estimate of 17 analysts surveyed by Bloomberg.

Time Warner Inc. gained 41 cents to $16.04 after UBS AG upgraded the stock to ``buy'' from ``neutral,'' saying it is undervalued.

Economy Watch

Investors may turn their attention to reports tomorrow that economists expect will show sales at U.S. retailers fell in January for a second month, signaling the biggest part of the economy may be starting to stumble. Still, William Poole, president of the Federal Reserve Bank of St. Louis, said last night that the U.S. will probably avert a recession and the Fed's interest-rate policy is appropriate for the slowing economy.

Investors anticipate the central bank will lower its benchmark interest rate by a further half point by mid-March after five reductions to 3 percent since September. Fed officials are attempting to prevent the first U.S. economic contraction since 2001, and last month lowered the overnight bank-lending rate at the fastest pace since 1990.