Stocks Gain on Bond-Insurer News

Reports that MBIA reassured investors about its AAA rating boosted sentiment Thursday

Soothing words from one of the stock market's most troubled companies, bond insurer MBIA ((MBI)) helped stocks bounce back Thursday from the impact of weak economic data.

MBIA and other bond insurers like Ambac ((ABK)) have been pummeled by their exposure to risky subprime debt, but MBIA executives said in a conference call Thursday that its capital plan exceeds all AAA rating requirements.

Earlier Thursday, initial jobless claims surged and a regional manufacturing survey dropped, raising investors worries about a much-anticipated January employment report due on Friday.

The Dow Jones industrial average ended the day up 207.53 points, or 1.67%, at 12,650.36. The broader S&P 500 index added 22.74 points, or 1.68% to 1,378.55. The tech-heavy Nasdaq composite index gained 40.86 points, or 1.74%, to end at 2,389.86.

The S&P 500 is ending the month of January with a loss of 6.12%, the worst January since 1990. Only four years since 1950 have started out as bad for investors as 2008: 1960, 1970, 1978 and 1990.

Before its conference call Thursday, MBIA reported a fourth-quarter loss per share of $18.61, vs. earnings of $1.32 per share one year earlier, after a $3.5 billion derivatives writedown. The company reported an operating loss of $3.30 per share, vs. operating EPS of $1.31.

MBIA executives successfully soothed the market, sending its stock up 11%. But on the same day, in another disturbing sign for the financial industry, Standard & Poor's, after cutting ratings on debt instruments on Wednesday, put MBIA and other financial firms on "credit watch" for a potential ratings downgrade.

"Although MBIA has succeeded in accessing $1.5 billion of additional capital, the magnitude of projected losses underscores our view that time is of the essence in the completion of capital raising efforts," S&P said.

In economic news Thursday, U.S. initial jobless claims jumped 69,000 to 375,000 in the week ended January 26 from 306,000 in the prior week. The reading was well above 315,000 that markets had expected. The 4-week moving average moved up to 325,750 from 315,500. Continuing claims rose 47,000 to 2,716,000 in the week ended Jan. 19, from 2,669,000 the week before.

Meanwhile, the employment cost index -- a measure of employment costs per hour for civilian workers -- rose 0.8% in the fourth quarter, with benefits up 0.9% and wages and salaries increasing 0.8%. The increase was in line with market expectations. Over the year, employment costs in private business are up 3.0%, with benefits up a moderate 2.4%. The moderation is continuing evidence that the Fed can leave inflation concerns on the back burner for now, says S&P economics.

U.S. personal income increased 0.5% in December, just above the 0.4% expected reading and the 0.4% figure the month before. Spending rose 0.2%, also above the 0.1% expected after the 1.0% surge in spending in November (revised down from 1.1%). Disposable income was up 0.5%. The PCE deflator was up 0.2% on the month, and is up 3.5% over last year, coming down from the 3.6% year-over-year reading in November. The core PCE deflator rose 0.2% on the month, and is up 2.2% year-over-year, same as in November.

The Chicago purchasing managers' index dipped to 51.5 in January (vs. economists' median forecast of 52.2) from 52.0 in December (revised down from 56.4). New orders tumbled to 44.7 versus 53.0 in the prior month. The employment index rose to 47.0 from 45.5, while prices paid surged to 81.7 from 69.0.

In energy markets Thursday, March WTI crude oil fell 58 cents to $91.75 per barrel.

Among stocks in the news Thursday, Internet retailer Amazon.com (AMZN) posted fourth-quarter EPS of 48 cents, vs. 23 cents one year earlier, on a 42% sales rise. The company sees first-quarter sales of $3.95-$4.15 billion and total 2008 sales of $18.75-$19.75 billion. The company also agreed to acquire digital audio publisher Audible (ADBL) for about $300 million.

MasterCard (MA) reported fourth-quarter EPS of $2.26 (including an after-tax gain of $1.37), vs. 30 cents one year earlier, on a 28% revenue rise.

Starbucks (SBUX) posted first-quarter EPS of 28 cents, vs. 26 cents, on 1.0% higher same-store sales and 17% higher total sales. The company said it views fiscal 2008 as a "year of refocus and renewal." It expects low double-digit EPS expansion for the fiscal year.

Burger King Holdings (BKC) reported second-quarter EPS of 36 cents, vs. 28 cents one year earlier, on a 4.5% rise in worldwide comparable sales and a 9.7% total revenue rise. The company expects to exceed its initial fiscal 2008 guidance.

Starwood Hotels (HOT) reported fourth-quarter EPS of 74 cents, vs. 93 cents one year earlier, despite a 2.4% revenue rise. The company lowered its first-quarter and full-year 2008 guidance to reflect economic uncertainty and the possibility of a slowdown in U.S. lodging demand.

European stocks were trading lower Thursday. In London, the FTSE 100 index fell 2.31% to 5,702.20. In Paris, the CAC 40 index shed 1.98% to 4,776.85. Germany's DAX index fell 2.39% to 6,710.75.

Asian markets finished mixed Thursday. Japan's Nikkei 225 index gained 1.85% to 13,592.47. In Hong Kong, the Hang Seng index fell 0.84% to 23,455.74. Shanghai's benchmark index fell 0.78%.

Treasury market

Treasuries were mixed Thursday as the bond market prepared for the impact of Friday's labor report. The ten-year note was unchanged at 104-01/32 for a yield of 3.63%, and 30-year bonds fell 12/32 to 110-22/32 for a yield of 4.35%.