Dow and S&P end higher on Buffet bond insurer offer
NEW YORK (Reuters) - The Dow Jones industrials and S&P 500 rose on Tuesday after Warren Buffett offered to reinsure $800 billion in municipal debt risk from the top three bond insurers, soothing worries about further fallout from the credit crisis.
Buffett's move allayed fears that banks would be forced to write down the value of assets insured by firms such as MBIA and Ambac. That sent the S&P financials index .GSPF up 2.3 percent.
"When you look at what Buffett is going to do, it's not going to be buying the company, but reinsuring what's out there. So it doesn't necessarily save Ambac and MBIA, but it does prevent the downgrade aspect of the bonds," said Owen Fitzpatrick, head of U.S. Equity Group, Deutsche Bank Private Wealth Management, in New York.
Strong earnings from agricultural company Monsanto and drugmaker Schering-Plough helped extend Monday's rebound from last week's steep losses.
The Dow Jones industrial average .DJI ended up 133.40 points, or 1.09 percent, at 12,373.41. The Standard & Poor's 500 Index .SPX was up 9.73 points, or 0.73 percent, at 1,348.86. The Nasdaq Composite Index .IXIC was down 0.02 point at 2,320.04.
"When you get that kind of fizzle at the end of a strong day, that's discouraging for the bulls," Krosby said.
Nasdaq was hampered by a drop in share of Research in Motion Ltd (RIMM.O). The BlackBerry maker had a service outage on Monday.
RIM shares ended 3.1 percent lower at $91.50.
Buffett, who is chairman and CEO of Berkshire Hathaway Inc (BRKa.N), told CNBC television he had made the offer to MBIA Inc (MBI.N), Ambac Financial Group (ABK.N) and FGIC.
Bond insurers shares dropped sharply since under Buffett's plan the companies would be left with a portfolio of riskier debt, including CDOs. The offer included a 30-day clause to allow bond insurers to come up with a better deal.
Ambac shares fell 15.1 percent to $8.90, while MBIA fell 15.3 percent to $11.50.
Shares of American International Group Inc (AIG.N) climbed 3.1 percent to $46.14. The world's largest insurer said the size of any write-down from potential derivatives looses was not expected to be material to the company.
Other financial shares trading higher included Bank of America Corp (BAC.N), up 1.6 percent to $42.82 and Citigroup Inc (C.N).
Monsanto Co (MON.N) shares rose 0.9 percent to $115.05 after the company raised its 2008 earnings forecast, while Schering-Plough SGP.N rose 5.9 percent to $21.83, after it posted results that exceeded Wall Street estimates.
Despite the Dow's rally, analysts said there is still some doubt that the gains will stick.
"Volume equals conviction and so far, we have not seen the necessary conviction on the days the market closed up," said Quincy Krosby, said chief investment strategist at The Hartford, in Hartford, Connecticut.
Trading volume dropped off late in the session, after being in line with normal levels for most of the day. About 1.53 billion shares changed hands on the NYSE, well below last year's estimated daily average of roughly 1.9 billion. On Nasdaq, about 2.21 billion shares traded, above last year's daily average of 2.17 billion.
(Reporting by Jennifer Coogan; editing by Gary Crosse)
