Wall Street bolted higher Monday after Standard & Poor's affirmed its ratings for Ambac Financial Group Inc. and MBIA Inc., raising hopes that troubled bond insurers will emerge from the credit market crisis on solid footing. The Dow Jones industrials rallied nearly 190 points.
The news came as a relief to a market that has fallen sharply in recent months on any negative news about the insurers; investors feared that a downgrade of the insurers' credit ratings would lead to billions of dollars in write-downs of securities held by already troubled banks and investment firms. Rating agencies including S&P have been under pressure to downgrade the insurers after they weakened their financial positions by insuring subprime mortgage securities that later collapsed.
There has been speculation that Ambac might find sufficient capital early this week to hold onto the stellar "AAA" rating it needs to remain in the municipal bond business. Municipalities and companies use these insurers to back bonds, allowing them to get higher ratings and cheaper financing.
"This is essentially evidence that S&P has signed off any tentative deal," said Charlie Smith, chief investment officer at Fort Pitt Capital Group, of the rating agency's announcement.
Financial institutions have already suffered billions of dollars in losses from securities that lost value during the fourth quarter.
Chris Johnson, president of Johnson Research Group, said the market continues to look for any sign that financial stocks will make it through the credit crisis. Experts believe keeping bond insurers whole will spare greater losses for major global banks and brokerages.
"Even the smallest bit of positive news and the market takes off," he said. "Investors get excited if they sense a bottom in the financials because they've been the Achilles' heel of this market."
The Dow rose 189.20, or 1.53 percent, to 12,570.22.
Broader stock indexes also closed with a solid advance. The Standard & Poor's 500 index rose 18.69, or 1.38 percent, to 1,371.80; and the Nasdaq composite index added 24.13, or 1.05 percent, to 2,327.48.
Advancing issues outpaced decliners by about 2 to 1 on the New York Stock Exchange. Consolidated volume, which spiked after S&P affirmed the bond insurers, came to 3.71 billion shares from 3.46 billion on Friday.
Bond prices fell. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.90 percent from 3.80 percent late Friday. The yield edge up to 3.91 percent in after-hours trading.
The dollar was mixed against most major currencies, while gold prices fell.
Oil prices hovered near $100 a barrel with supply concerns heightened by a Turkish military incursion into northern Iraq and warnings by Iran against further international sanctions. A barrel of light, sweet crude rose 42 cents to $99.23 on the New York Mercantile Exchange.
Wall Street also rose after the National Association of Realtors reported existing homes fell less than forecast in January. Investors, while still wary of recession, grew hopeful the housing market might be on the verge of bottoming out with a rebound expected to start toward the end of this year.
But, that wasn't enough to help boost shares of banks like Citigroup Inc. after Goldman Sachs said it expects several more multibillion-dollar write-downs across the sector. The report said Citi faces a potential $12 billion write-down, and shares slipped 38 cents to $24.74. Ambac shares surged $1.70, or 16 percent, to $12.41; and MBIA jumped $2.40, or 19.7 percent, to $14.58.
In other corporate news, Visa said in a Securities and Exchange Commission filing it will offer 406 million shares at $37 to $42 per share. The IPO was seen as a positive sign that a major financial company feels confident to go public despite the ongoing market turbulence.
TakeTwo Interactive Software Inc. surged $9.53, or 55 percent, to $26.89 after rival Electronic Arts Inc. renewed its bid to buy the company. The stock is now trading at a 52-week high on speculation the bid could go hostile.
There was good news for cancer drug manufacturer Genentech Inc. The Food and Drug Administration granted an accelerated approval for its Avastin treatment, which is administered with a chemotherapy treatment to breast cancer patients. Shares rose $6.36, or 8.8 percent, to $77.96.
Lowe's Cos. reported a drop in fourth quarter earnings and cited the weak housing market. However, shares of the home improvement retailer rose 91 cents, or 3.8 percent, to $24.50 amid hopes that the housing slump might soon hit a bottom.
The Russell 2000 index of smaller companies rose 15.03, or 2.16 percent, to 710.46.
Overseas, Tokyo closed 3.07 percent higher. In London, the FTSE 100 rose 1.89 percent, Paris' CAC 40 advanced 1.12 percent, and Frankfurt's DAX gained 1.96 percent.