U.S. Stocks Lifted By Buffett Offer; Dow Up More Than 200 Pts.

NEW YORK (MarketWatch) -- U.S. stocks bounced higher for a second day Tuesday morning, 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, but it doesn't solve the main problem; nobody was worried about the muni-bond business," said Peter Boockvar, equity strategist at Miller Tabek.

"Defaults rates are less than 1%; reinsuring the muni-bond business is a no-brainer for anybody," said Bookvar, who questioned the longevity of the enthusiasm over Buffet's bid.

The Dow Jones Industrial Average gained 212.1 points in early morning trading to 12,451.5, with all but one of its 30 components moving ahead, led by Dupont & Co. , up 3.4%.

Blue-chip financials were among those climbing, with Citigroup Inc. up 3.7%, American Express Co. up 3.2%, and JP Morgan Chase rising 2.4%.

The S&P 500 gained 21.34 points to 1,360.47, while the Nasdaq Composite rose 27.68 points to 2,347.74.

Volume on the New York Stock Exchange came to 403 million, and advancing stocks topped those declining 3 to 1. On the Nasdaq, 609 million shares exchanged hands, and advancers topped decliners about 2 to 1.

On the New York Mercantile Exchange, crude gained 49 cents to $94.08 a barrel, while gold declined $4.9 to $921.8 an ounce.

Buffett weighs in

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 reports of 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. is scheduled for 11:15 am. Eastern.

Shares of Schering-Plough Corp. gained 6.3% after the drug maker reported steep fourth-quarter losses but still beat forecasts. .

Overseas, Credit Suisse Group trimmed its projected exposure to subprime mortgage debt, with the Swiss investment bank also reporting fourth-quarter net profit fell 72% due to write-downs. .

In Europe, stocks gained, with the financial sector paving the move higher. .

By Kate Gibson