U.S. Stocks Rise After Buffett Offers to Help Bond Insurers
By Eric Martin
Feb. 12 (Bloomberg) -- 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.
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