Wall Street finished mostly higher Tuesday after billionaire investor Warren Buffett offered to help out troubled bond insurers, easing some of the market’s concerns about further deterioration in the credit markets. The Dow Jones industrials rose more than 130 points.
In an interview on CNBC, Buffett said his Berkshire Hathaway Inc. holding company has offered a second level of insurance on up to $800 billion in municipal bonds. The reinsurance offer is for bond insurers Ambac Financial Group Inc., MBIA Inc. and Financial Guaranty Insurance Co., known as FGIC.
Word of the offer gave some investors relief although Buffett said a deal would only back municipal bonds, and not the risky and complicated financial instruments that many see as more likely to have problems. Still, further assurances on the soundness of municipal bonds could help shore up Wall Street’s confidence and reinforce the differences in quality among various levels of debt.
Russell Croft, portfolio manager at Croft Leominster Investment Management in Baltimore, said Buffett’s move gives the market a bit of needed confidence.
“It’s a good thing to see,” he said. He also agreed with Buffett’s assessment that stocks are mostly fairly valued. “We could definitely test some more lows going forward but there was a pretty good drop-off there again and I think people are trying to take advantage of it to get some quality stocks at cheaper prices.”
The Dow rose 133.40, or 1.09 percent, to 12,373.41. The blue chip index was up more than 200 points earlier in the session. The Standard & Poor’s 500 index advanced 9.73, or 0.73 percent, to 1,348.86.
However, the Nasdaq composite index edged down 0.02, or less than 0.01 percent, to 2,320.04.
Tech stocks fell in the last hour of trading amid uncertainty about Microsoft Corp.’s bid to acquire Yahoo Inc. — an overture that could eventually go hostile. In addition, Research In Motion Ltd. fell after its Blackberry e-mail system had an outage.
Bond prices fell Tuesday after Buffett’s announcement. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.67 percent from 3.63 percent late Monday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell 81 cents to settle at $92.78 a barrel on the New York Mercantile Exchange.
Buffett’s overture to the big bond insurers reassured investors. Buffett said one firm rejected his offer and he is still waiting to hear from the other two.
Bond insurers write policies that promise to cover payments to bondholders if the entity that issued the bonds defaults. Reinsurance provides a second level of insurance on those bonds.
But some analysts were cautious.
Investors should be careful not to read too much into the market’s advance, said Len Blum, managing director of Westwood Capital. He noted that recent readings on U.S. retail spending show that Americans are hurting financially.
“Stock markets will have good days in bear markets,” he said, adding that he believes more problems will be uncovered in the financial sector. “We haven’t seen all the losses. Even if you have some investors willing to bottom fish, or very sophisticated investors like Warren Buffet willing to invest at this point, the financial sector is still really sick.”
Investors also appeared pleased Tuesday by a government plan called Project Lifeline involving the six largest mortgage lenders to help at-risk borrowers with all types of mortgages retain their homes.
And adding to investors’ upbeat mood, Credit Suisse Group sharply reduced its estimate of how much exposure it has to subprime mortgage debt. Switzerland’s second largest bank said its debt tied to subprime mortgages, those given to borrowers with poor credit, fell to 1.6 billion francs ($1.45 billion) from 3.9 billion francs at the end of September. Its fourth-quarter net profit fell 72 percent because of write-downs. The company’s U.S.-traded shares rose $1.11 to $51.94.
General Motors Corp. fell 52 cents to $26.60 after announcing a fresh round of buyouts to all 74,000 of its U.S. hourly workers represented by the United Auto Workers. The company also reported losses of $38.7 billion in 2007, the largest annual loss for an automotive company.
Yahoo fell 30 cents to $29.57 after the search engine’s board rejected Microsoft’s $44.6 billion bid. That raised speculation that Microsoft — whose shares rose 13 cents to $28.34 — might take its offer directly to shareholders.
Meanwhile, Research In Motion shares fell $2.97, or 3.1 percent, to $91.50 after the company acknowledged that its network service was widely disrupted Monday.
Advancing issues outnumbered decliners by 3 to 2 on the New York Stock Exchange, where volume came to 1.36 billion shares.
The Russell 2000 index of smaller companies rose 5.73, or 0.82 percent, to 705.48.
Overseas, Japan’s Nikkei stock average inched up 0.04 percent and Hong Kong’s Hang Seng index advanced 1.35 percent. Britain’s FTSE 100 rose 3.54 percent and Germany’s DAX index rose 3.33 percent. France’s CAC-40 closed up 3.37 percent.