U.S. Stocks Advance, Erasing Decline, Led by Banks, Retailers

By Michael Patterson

Jan. 31 (Bloomberg) -- U.S. stocks rose, sparing the Standard & Poor\'s 500 Index from its worst January ever, after the nation\'s largest bond insurer said it expects to keep AAA credit ratings.

Stocks rebounded from losses after MBIA Inc. Chief Executive Officer Gary Dunton\'s comments sparked a rally in bank shares. Home Depot Inc., the largest home improvement chain, led the Dow Jones Industrial Average and retailers higher after Deutsche Bank AG said shoppers will spend more as interest rates fall and the government distributes tax rebates.

``The fears that were out there have been allayed somewhat,\'\' said Walter ``Bucky\'\' Hellwig, who helps oversee about $30 billion at Morgan Asset Management in Birmingham, Alabama. ``Money\'s going to work in these oversold sectors like financials and consumer discretionary where you have the potential for the biggest bounce back.\'\'

The rallies helped reverse a 1.6 percent decline in the S&P 500 spurred by a steeper-than-forecast increase in jobless claims. The S&P 500 added 9.22 points, or 0.7 percent, to 1,365.03 as of 12:38 p.m. in New York. The Dow average gained 80.39, or 0.7 percent, to 12,523.22. The Nasdaq Composite Index climbed 13.25, or 0.6 percent, to 2,362.25. About two stocks rose for every one that fell on the New York Stock Exchange.

Financial companies gained 1.8 percent as a group after MBIA\'s conference call boosted expectations that bond insurers will maintain the top credit ratings they rely on to guarantee $2.4 trillion in securities. Before the call, the S&P 500 had extended its January tumble to 9.1 percent, which would have been the worst in the 80-year history of the index if the benchmark finished the day at that level.

MBIA, Ambac

MBIA added $1.33, or 9.5 percent, to $15.29 after saying its plan to shore up capital exceeds all requirements for an AAA credit rating. The stock earlier fell 15 percent after the company posted a record fourth-quarter net loss of $2.3 billion, or $18.61 a share.

The loss came a day after FGIC Corp.\'s insurance unit became the third company to be stripped of its AAA grade. Without a top-rating, MBIA\'s business would be crippled and throw ratings on $652 billion of securities into doubt.

Ambac Financial Group Inc. gained $1.09, or 10 percent, to $11.94, erasing an 11 percent drop, after Citigroup Inc. analysts said the second-largest bond insurer and MBIA may weather competition from Berkshire Hathaway Inc. Citigroup also said Ambac can\'t easily be replaced if it loses its credit rating and increased its estimate on the shares 71 percent to $12.

Home Depot climbed $1.03, or 3.5 percent, to $30.41 and led the S&P 500 Retailing Index to a 3.4 percent advance after Deutsche Bank boosted its rating for U.S. chain stores, saying merchants will benefit from a fiscal stimulus package and interest-rate cuts in the next six months.

``We believe the worst will soon be behind us,\'\' analyst Bill Dreher wrote in a report yesterday that upgraded retailers to ``neutral\'\' from ``cautious.\'\'

Wal-Mart Stores Inc., the world\'s largest retailer, climbed $1.39, or 2.8 percent, to $50.55.

To contact the reporter on this story: Michael Patterson in New York at [email protected] .
Last Updated: January 31, 2008 12:47 EST