By Eric Martin
Feb. 12 (Bloomberg) -- U.S. stocks rose for a second day, led by financial shares, on expectations Warren Buffett, the world's No. 1 investor, will help stem credit losses by offering to shore up the municipal bond market.
Citigroup Inc. and Bank of America Corp., the two largest U.S. banks, climbed after Buffett said he's willing to take on $800 billion in insurers' municipal debt obligations in an interview with CNBC. Qwest Communications Inc., the local phone service provider, and Molson Coors Brewing Co., the third- largest U.S. beer maker, rallied on earnings that topped analysts' estimates.
Buffett's offer ``is another potential solution to some of the credit problems,'' said Mark Bronzo, who helps manage $11 billion at Security Global Investors in Irvington, New York. ``That's why the markets are responding well.''
The Standard & Poor's 500 Index and Dow Jones Industrial Average pared gains and the Nasdaq Composite Index was little changed after JPMorgan Chase & Co. said Baidu.com Inc., the owner of China's most-popular search engine, may fail to increase revenue.
The S&P 500 added 9.73 points, or 0.7 percent, to 1,348.86 after earlier gaining 1.7 percent. The Dow rose 133.4, or 1.1 percent, to 12,373.41, paring an advance of as much as 229 points. The Nasdaq lost 0.02 point to 2,320.04. About two stocks rose for every one that fell on the New York Stock Exchange. Shares in Europe and Asia gained.
$2.4 Trillion Insured
Concern that bond insurers don't have enough money to pay claims on the $2.4 trillion in assets they guarantee has contributed to a 7.9 percent drop in S&P 500 financial shares in 2008. MBIA Inc., the largest bond insurer, lost 80 percent of its value in the last year before today, and smaller rival Ambac Financial Group Inc. slumped 88 percent, on concern that the companies will lose their AAA credit ratings.
Financial companies climbed 1.4 percent as a group today, providing the biggest boost to the S&P 500 out of 10 industries. Citigroup added 40 cents to $26.21. Bank of America rallied 68 cents to $42.82. Moody's Corp., the world's second-largest credit-ratings company, gained $2.28, or 6.3 percent, to $38.61.
Buffett said he offered to take on the municipal-bond liabilities of MBIA, Ambac Financial and FGIC Corp. Buffett's Berkshire Hathaway Inc. would provide so-called reinsurance for the debt, he said in an interview with CNBC television.
One company turned down the offer and the two others haven't responded, Buffett, chairman of Berkshire Hathaway Inc., told CNBC.
MBIA and Ambac dropped on concern Buffett's proposal would leave them with mortgage securities that caused more than $5 billion of losses last quarter, while Berkshire would gain a municipal guaranty business that has generated profit for more than 14 years.
For banks, if a bond is ``insured by the bond insurers and then reinsured by Warren Buffett, you're confident it has a AAA rating,'' said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. ``But that's a very profitable business for the bond insurers, so by paying Warren Buffett to reinsure they're basically giving away the premiums they take in for that business. That's why the bond insurers are trading poorly.''
Financial shares also climbed on plans to help delinquent homeowners avoid foreclosure. Bank of America, Citigroup and four other U.S. lenders announced a plan to offer a 30-day freeze on home foreclosures while loan modifications are considered. Treasury Secretary Henry Paulson and U.S. Housing and Urban Development Secretary Alphonso Jackson said today at a news conference in Washington that ``Project Lifeline'' would help stabilize communities disrupted by mortgage defaults.
Asset writedowns and credit losses tied to the collapse of the subprime mortgage market have cost the world's largest financial institutions at least $146 billion, according to data compiled by Bloomberg. Analysts expect financial companies, whose earnings slumped in the fourth quarter, to return to profit growth by the third quarter of 2008.
``The major write-offs are behind us now, and these banks will have excellent earnings power within a year or two,'' said David Dreman, who oversees $20 billion at Jersey City, New Jersey-based Dreman Value Management LLC. ``Many of them have been knocked down very sharply.''
Qwest gained 15 cents, or 2.9 percent, to $5.28, leading telephone companies to the biggest gain among 10 industries in the S&P 500. The local phone service provider in 14 western U.S. states posted an 89 percent gain in fourth-quarter profit as it cut labor expenses.
Molson gained the most in the S&P 500, surging $4.30, or 9.5 percent, to $49.66. Fourth-quarter profit rose more than analysts estimated as higher prices in North America and Europe helped boost revenue.
Technology shares in the S&P 500 slid 0.2 percent as a group, erasing a gain of as much as 1.2 percent, after JPMorgan said Baidu.com may forecast ``flat'' first-quarter revenue versus the fourth quarter. Baidu erased a 7.9 percent rally to close down $1.28, or 0.5 percent, to $245.43.
Insurers rebounded from their steepest drop in more than three years after American International Group Inc., the world's largest, said ``over time'' it may recoup losses in assets that declined by $4.88 billion in value in October and November.
AIG tumbled the most in two decades in New York trading yesterday after it said writedowns from the contracts, sold to protect fixed-income investors, were four times bigger than a previous estimate. AIG gained $1.40, or 3.1 percent, to $46.14 today.
Monsanto Co. rose $1.02 to $115.05 after the world's largest seed producer increased its 2008 profit forecast on higher demand for weed killer and genetically modified corn and soybeans. Profit in the year ending Aug. 31 will increase to $2.70 to $2.80 a share, 20 cents above the range of a Jan. 3 forecast.
Schlumberger Ltd. climbed $1 to $81.49 after Bear Stearns raised its recommendation on the world's largest oilfield- services provider to ``outperform'' from ``peer perform,'' saying the company's offshore drilling and exploration make it ``well positioned for the next phase of the oilfield service business cycle.''
Schering-Plough Corp. gained $1.21 to $21.83. The maker of Vytorin and Zetia cholesterol pills reported fourth-quarter profit, excluding some items, of 52 cents a share, beating the 27-cent average estimate of 17 analysts surveyed by Bloomberg.
General Motors Corp. dropped 52 cents to $26.60. The world's largest automaker posted a fourth-quarter net loss of $722 million on shrinking sales in North America.
The Russell 2000 Index, a benchmark for companies with a median market value of $536 million, gained 5.73, or 0.8 percent, to 705.48, led by GMH Communities Trust. The provider of housing to students and the military surged the most since its initial public offering in 2004 after agreeing to be bought in two transactions for a total of $787 million. GMH added $3.08, or 55 percent, to $8.67.
World Wrestling Entertainment Inc. climbed 98 cents, or 6.4 percent, to $16.29. The producer of television's ``WWE Friday Night SmackDown'' reported fourth-quarter revenue and profit that was higher than the average analyst estimate as video sales and ticket prices increased.
NxStage Medical Inc. fell the most since its 2005 initial public offering, dropping $4.26, or 33 percent, to $8.49. The maker of portable dialysis systems said it expects a loss of as much as $1.52 a share in 2008, wider than the $1.06 loss estimated by analysts in a Bloomberg survey.
Investors turned their attention to reports tomorrow that probably will show sales at U.S. retailers fell in January for a second month, according to the average forecast of economists surveyed by Bloomberg.
Retailers fell 0.7 percent, the most among 24 industries in the S&P 500. J.C. Penney Co., the third-largest U.S. department- store chain, fell $1.77 to $48.18.
William Poole, president of the Federal Reserve Bank of St. Louis, said yesterday that the U.S. will probably avert a recession and the Fed's interest-rate policy is appropriate for the slowing economy.
Traders anticipate the central bank will lower its benchmark interest rate by a further half point by mid-March after five reductions to 3 percent since September. Fed officials are attempting to prevent the first U.S. economic contraction since 2001, and last month lowered the overnight bank-lending rate at the fastest pace since 1990.