NEW YORK (Reuters) - Stocks snapped a five-day losing streak on Wednesday, with the Dow surging nearly 300 points on optimism that a government plan to rescue ailing bond insurers is taking shape and could prevent billions more in credit losses.
The market also drew support from growing confidence that aggressive interest-rate cuts by the Federal Reserve could help stabilize the economy and support the beleaguered banking sector.
Shares of insurers Ambac Financial Group Inc and MBIA Inc, which backstop many of the riskier bets banks and their customers have made in credit markets, surged 63 percent and nearly 36 percent, respectively.
News of a meeting between New York regulators, bond insurers and their customers lifted the market out of negative territory in late afternoon, pushing the Dow and S&P up more than 2 percent by the close. That marked a sharp turnaround from earlier in the day, when the Dow and the S&P were each down more than 2 percent.
“The speculation that mortgage insurers could potentially get a bailout helped the market stabilize. That was enough to get the market going. There was no real silver bullet news that came through,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
The Dow Jones industrial average rose 298.98 points, or 2.50 percent, to settle at 12,270.17. The Standard & Poor’s 500 Index was up 28.10 points, or 2.14 percent, at 1,338.60. The Nasdaq Composite Index was up 24.14 points, or 1.05 percent, at 2,316.41.
Trading was heavy, with volume on the New York Stock Exchange unofficially hitting the second highest on record, the Big Board said.
After the close, shares of eBay Inc dropped more than 7 percent to $26.69 after the Internet auctioneer and retailer warned about its profit outlook at the same time it announced its CEO departure plan. The stock closed at $28.94 on Nasdaq, up 6.7 percent before the company’s announcement.
During the regular session, Ambac settled at $13.01, up $5.04, while MBIA ended at $17, up $4.47, and the S&P financial index jumped 6.8 percent, its biggest one-day percentage gain in more than five years.
The New York State Insurance Department met with bond insurance counterparties and policyholders, spokesman David Neustadt said.
“That (bailout plan) combined with the Fed push was really enough to get the financials running,” said Rick Meckler, president of broker-dealer LibertyView Capital Management in Jersey City, New Jersey.
On Tuesday, the Fed cut interest rates by 75 basis points in an unusual decision between its regularly scheduled policy meetings. The Federal Open Market Committee is set to meet next Tuesday and Wednesday.
Stocks started the day sharply weaker, with disappointing profit forecasts from Apple Inc and Motorola adding to worries about consumer spending and a recession.
The Nasdaq was down more than 3 percent at one point, and, for the second day, the index briefly crossed the threshold of a bear market, defined as falling 20 percent or more from a recent closing high.
After Tuesday’s closing bell, Apple forecast a quarterly profit below analysts’ expectations and reported disappointing holiday-season iPod shipments. Apple’s stock sank 10.7 percent to $139.07 on the Nasdaq.
Mobile phone maker Motorola Inc forecast a loss for the current quarter and said it expects a challenging year. Motorola shares lost 18.4 percent to $10.05 and ranked among the biggest percentage losers on the NYSE.
On the NYSE, about 2.83 billion shares changed hands, above last year’s estimated daily average of roughly 1.9 billion, while on the Nasdaq, about 3.68 billion shares traded, ahead of last year’s daily average of 2.17 billion.
Advancing stocks outnumbered declining ones by a ratio of about 3 to 1 on the NYSE and by about 3 to 2 on Nasdaq.
(Additional reporting by Ellis Mnyandu and Herbert Lash;
Editing by Jan Paschal)