Stocks Jump on Bond Insurers News

News that MBIA and Ambac might keep their top credit ratings lifted stocks Monday afternoon. Visa announced plans for its IPO

by Ben Steverman

Stocks rallied Monday after Standard & Poor's reaffirmed its AAA credit ratings for bond insurers Ambac Financial Group (ABK) and MBIA (MBI).

Investors worry the credit crisis could deepen if bond insurers, stung by subprime exposure, lose their stellar credit rating. S&P Ratings did lower its ratings for other bond insurers: FGIC fell to A from AA and XL Capital was sliced to A- from AAA. S&P also warned that it could still cut Ambac, which is trying to arrange extra capital through a bailout.

"The headlines appear to be more bullish than the negative underlying message," says Action Economics.

On Monday, the Dow Jones industrial average rose 189.2 points, or 1.53%, to 12,570.22. The broader S&P 500 moved up 18.69 points, or 1.38%, to 1,371.80. And the tech-heavy Nasdaq composite index added 24.13 points, or 1.05%, to 2,327.48.

On the New York Stock Exchange, 24 stocks gained ground for every eight that fell in price. On the Nasdaq, the ratio was positive, 24 to 10.

On the bright side, Visa announced plans for what could be the largest initial public offering in history. Visa Inc. plans to sell $17 billion in stock in its IPO. The 406 million shares of stock would sell for $37 to $42 each, the company says.

Also Monday, home improvement retailer Lowe's (LOW) announced weak fourth-quarter earnings, another sign of the weak housing market. It reported fourth-quarter earnings of 28 cents per share, vs. 40 cents a year ago, as same-store sales fell 7.6% and total sales were flat. The retailer expects same-store sales to fall 5% to 7% in the first quarter, and total sales to rise about 2%. Same-store sales could fall 5% to 6% for the entire next year, Lowe's says. But Lowe's shares still moved higher after better-than-expected data on housing.

U.S. existing home sales fell 0.4% to a 4.89 million pace in January, according to a report released Monday. The data mostly met expectations, with total sales off 23.4% from a year ago. Single-family sales inched up 0.5%, but condo and coop sales fell 6.5%. There is now a 10.3 month supply of homes on the market, up from 9.7 months, and the median price fell to $201,100 from $207,000.

"The relative stability in existing home sales in January is something of a surprise" but "it is too soon to talk about stabilization," said John Ryding, chief U.S. economist at Bear Stearns BSC. Aaron Smith, of Moody's Economy.com, says there is still "the possibility of double-digit year-over-year price declines in the coming months."

Oil prices continued to flirt with the $100 per barrel level. WTI crude oil for April delivery was up 49 cents in NYMEX trading Monday to $99.30 per barrel. Cold temperatures in the U.S. were helping to support prices, while geopolitical concerns were raised by Turkey's military moves into northern Iraq, Action Economics says.

Among the deal news on Monday, Take-Two Interactive Software (TTWO) rejected a takeover bid by Electronic Arts (ERTS), which offered $2 billion for the video game maker. Take-Two's board said the $26 per share proposal was "inadequate in multiple respects and not in the best interests" of stockholders.

Getty Images (GYI) agreed to be acquired by Hellman & Friedman LLC in a $2.4 billion deal. The buyout offer is $34 per share, a 39% premium over Friday's closing price.

General Motors (GM) was reportedly downgraded from buy to hold by analysts at Deutsche Bank.

The Brink's Co. (BCO) board has approved a spin-off of the company's home security unit into a separate publicly traded firm.

Firstenergy (FE) announced lower-than-expected earnings of 87 cents per share, vs. 84 cents a year ago, as revenue rose 15%.

Humana (HUM) announced a $150-million stock buyback plan.

European stocks started the week higher. In London, the FTSE 100 index closed with a gain of 1.89% to 5,999.5. In Paris, the CAC 40 Index jumped 1.96% to 4,919.26, and in Germany the DAX index added 1.12% to 6,882.56.

Asian stocks were mixed. In Japan, the Nikkei 225 index surged 3.07% to 13,914.57, but Hong Kong's Hang Seng Index edged down 0.15% to 23,269.14.

Treasury market

Treasury prices fell amid the better-than-expected news on bond insurers and the housing market. The ten-year note fell 26/32 to 96-23/32 for a yield of 3.90%; and the 30-year bond sank 42/32 to 95-12/32 for a yield of 4.66%.

Steverman is a reporter for BusinessWeek's Investing channel.