Ambac shares rise 80 percent after liabilities canceled

NEW YORK (Reuters) - Shares of Ambac Financial Group rose more than 80 percent on Thursday, after it reached an agreement to cancel contracts covering structured debt valued at $3.5 billion, allowing it to reduce loss reserves.

Ambac Assurance Corp, Ambac's main unit, paid $1 billion to get out of four contracts it had written to guarantee collateralized debt obligations, reducing the bond insurer's liabilities. It said the terminations would allow it to reduce reserves set aside for market losses on these guarantees.

Ambac shares rose 86 percent to $1.42 on the New York Stock Exchange, after closing at 76 cents a day earlier.

Ambac's stock has lost nearly all its value over the last year, falling from $24.74 last November.

Bond insurers, which guarantee payments on debt in the event of default, have been hit hard by the credit crunch and have lost their "triple-A" credit ratings after posting billions of dollars of losses from exposure to mortgages and complex debt instruments, hampering their businesses.

Both Ambac, and its larger rival MBIA Inc, have seen little new business since it lost its top ratings.

Research firm Friedman, Billings, Ramsey on Thursday said Ambac's contract cancellations were "positive," but did not "answer ongoing business model concerns."

Bond insurers have been seeking federal support under the government's $700 billion financial rescue plan.

Friedman, Billins said short of government assistance, Ambac would have a "difficult road ahead."

(Reporting by Lilla Zuill)