U.S. Stocks Lifted By Buffett Offer; Dow Up More 160 Points
NEW YORK (MarketWatch) -- U.S. stocks bounced higher for a second day Tuesday, with investors drawing a psychological lift from billionaire investor Warren Buffett's proposed buyout of bond insurers' liabilities and another round of cost-cutting by auto giant General Motors Corp.
"Sentiment-wise, it sounds good. It provides some liquidity to bond insurers in dealing with CDO [collateralized debt obligation] exposure," said Peter Boockvar, equity strategist at Miller Tabek.
"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," said Bookvar, who questioned the longevity of the enthusiasm over Buffet's bid.
Up more than 220 points earlier on, the Dow Jones Industrial Average pared some gains to stand 161.9 points higher at 12,401.9 by midday, with all but four of its 30 components moving ahead in a cross-sector advance. Boeing Co. was up 3.7%, Merck & Co. Inc. had risen 3.1%, and Dupont & Co. , was 2.8% higher.
Blue-chip financials were among those climbing, with Citigroup Inc. up 2.6%, American Express Co. up 1.7%, and JP Morgan Chase rising 0.3%.
The S&P 500 gained 13.19 points to 1,352.32, while the Nasdaq Composite rose 13.23 points to 2,333.29.
Volume on the New York Stock Exchange came to 663 million, and advancing stocks topped those declining more than 2 to 1. On the Nasdaq, more than 1 billion shares exchanged hands, and advancers topped decliners nearly 2 to 1.
On the New York Mercantile Exchange, crude dropped 99 cents to $92.6 a barrel. .
Gold futures were pressured by reports of upcoming gold sales from the International Monetary fund, with the spot month recently off declined $16.7 to $910 an ounce. .
Buffett benefits
In a televised interview, Buffett told CNBC Berkshire Hathaway Inc. made the offer to MBIA Inc., Ambac Financial Group Inc. and Financial Guaranty Insurance Co., which is partially owned by Blackstone Group LP . One of the three rejected the offer, and the two others have yet to respond to the offer to reinsure $800 billion in municipal bonds, Buffett said. .
"As a potential way out of the bond insurance mess, this buoyed investor optimism and boosted stocks ahead of the opening bell," said analysts at Action Economics.
While helping lift sentiment, Bookvar 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 their 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.
Driven
GM said it is offering buyouts to 74,000 United Auto Workers members in the U.S. to cut costs, and reported losses of $38.7 billion last year, its biggest annual decline.
Investors were also 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 mortgage payments.
Formal announcement of the plan involving JPMorgan, Citigroup, Bank of America Corp. , Washington Mutual Inc. , Wells Fargo , 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 5.3% after the drug maker reported steep fourth-quarter losses but still beat forecasts. .
Monsanto Co. also gained, recently up 1.4%, 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-quarter net proft fell 72% due to write-downs. .
In Europe, stocks gained, with the financial sector paving the move higher. .
By Kate Gibson