"Sentiment-wise, it sounds good. It provides some liquidity to bond insurers in dealing with CDO [collateralized debt obligation] exposure," according to Peter Boockvar, equity strategist at Miller Tabak.
"People weren't fleeing [the market] because of problems in the muni-bond business. Default rates are less than 1%, so reinsuring the muni-bond business is a no-brainer for anybody," he said, calling into question the longevity of enthusiasm over Buffet's bid.
Up more than 220 points earlier on, the Dow Jones Industrial Average pared some gains to stand 170.3 points higher at 12,410.3, with less than an hour to go before the closing bell.
Of the Dow's 30 components, all but three were moving ahead in a cross-sector advance. Boeing Co. was up 3.6%, Merck & Co. had risen 3.3%, and DuPont & Co. , was 3.1% higher.
Blue-chip financials were among those climbing, with Citigroup Inc. up 2.5%, American Express Co. up 2%, and JPMorgan Chase & Co. rising 1%.
The S&P 500 Index gained 14.46 points to 1,353.59, while the Nasdaq Composite Index rose 15.85 points to 2,335.91.
Volume on the New York Stock Exchange topped 1 billion, and advancing stocks topped those declining more than 2 to 1. On the Nasdaq, nearly 1.6 billion shares exchanged hands, and advancers topped decliners 2 to 1.
On the New York Mercantile Exchange, crude dropped 81 cents to $92.78 a barrel. .
Gold futures were pressured by reports of upcoming gold sales from the International Monetary Fund, with futures off $15.6 or 1.7% at $911.1 an ounce. .
Oracle of Omaha
In a televised interview, Buffett told CNBC that Berkshire Hathaway Inc. offered to reinsure $800 billion in municipal bonds for MBIA Inc., Ambac Financial Group and Financial Guaranty Insurance Co., which is partially owned by Blackstone Group . One of the three rejected the offer, and two others have yet to respond, Buffett said. .
"As a potential way out of the bond-insurance mess, this buoyed investor optimism and boosted stocks ahead of the opening bell," commented analysts at Action Economics.
While helping lift sentiment, Boockvar and others said that, in reality, Buffett's move would do little to stem the damage in the credit markets.
"I really don't think this does much for anyone but Warren Buffett, as the thought of an insurer 'giving away' its best business and only means of surviving this mess in return for the rest of its 'junk in the trunk' should leave them cold," said Kevin Giddis, fixed-income analyst at Morgan Keegan & Co.
GM said that it's offering buyouts to 74,000 United Auto Workers members in the United States to cut costs, and also reported losses of $38.7 billion last year -- its biggest annual decline.
Separately, investors were heartened by a plan by half a dozen U.S. mortgage lenders to help at-risk borrowers keep their homes by freezing foreclosures for 30 days for borrowers more than three months behind on their loan payments.
Formal announcement of the plan involving J.P. Morgan, Citigroup, Bank of America Corp. , Washington Mutual Inc. , Wells Fargo & Co. , and Countrywide Financial Corp. was formally announced Tuesday, with Treasury Secretary Henry Paulson offering details at a news conference. .
Shares of Schering-Plough Corp. gained 1.2% after the drugmaker reported steep fourth-quarter losses but still beat forecasts. .
Monsanto Co. also gained, recently up 1.8%, after the agricultural giant hiked its forecast for the year. .
Overseas, Credit Suisse Group trimmed its projected exposure to subprime-mortgage debt, with the Swiss investment bank also reporting fourth-quarer net profit fell 72% due to write-downs. .
In Europe, stocks gained, with the financial sector paving the move higher. .
By Kate Gibson