Media report sends market for a late-day loop
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NEW YORK (Reuters) - Shares of bond insurers AMBAC Financial Group Inc (ABK.N) and MBIA Inc (MBI.N) tumbled in the last hour of trading on Wednesday, taking the broader U.S. stock market with them, after a CNBC reporter said he had a "gut" feeling that ratings agencies may downgrade one or both.
Investors have fretted for weeks about whether Ambac and MBIA might lose their top credit ratings from Moody's Investors Service or Standard & Poor's, an event that could trigger a fresh round of bloodletting in beleaguered credit and financial markets.
On Wednesday, the three major U.S. benchmark indexes had each been up by more than 1 percent after the Federal Reserve cut the fed funds rate by a half percentage point at 2:15 p.m.
Then, shares of Ambac and MBI tumbled abruptly at around 3:10 p.m. when CNBC On-Air-Editor Charles Gasparino made his comments about the companies. Major indexes quickly followed suit.
"My gut is telling me Moody's and S&P are going to downgrade either one or both," Gasparino said on air. CNBC later posted a report on its Web site saying the network had learned that the downgrade could come as early as Wednesday. The report cited no sources for the information.
Traders attributed the market's about face to the Gasparino report, noting the S&P 500 slid rapidly from its session high, reached at about 3:08 p.m.
"Once he started talking, we got the sell-off," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "Any time (Ambac and MBIA) go down, they take the entire market with them."
The crisis in subprime lending has put heavy focus on the bond insurers because they insure $2.3 trillion worth of debt. A ratings downgrade on the companies would put further strain on the financial system.
Fitch Ratings did cut FGIC Corp's bond insurance arm from "AAA" to "AA" at 3:31 p.m. ID:nN30235315.
Ambac shares closed 17 percent lower at $10.73. MBIA stock dropped 12.6 percent to $13.96.
The Dow Jones industrial average .DJI settled 37.47 points, or 0.30 percent, lower at 12,442.83. The Standard & Poor's 500 Index .SPX ended down 6.49 points, or 0.48 percent, at 1,355.81. The Nasdaq Composite Index .IXIC fell 9.06 points, or 0.38 percent, to 2,349.00.
CNBC spokesman Kevin Goldman told Reuters the network stood by Gasparino's report.
(Additional reporting by Herb Lash; Editing by Dan Grebler)
