U.S. Stocks Rally in Final 30 Minutes, Gain for Week, on Ambac

U.S. stocks rallied in the final 30 minutes of trading, helping the market post its second straight weekly gain, as speculation bond insurer Ambac Financial Group Inc. may be rescued overcame concern bank earnings will falter.

American International Group Inc. and JPMorgan Chase & Co. led the Dow Jones Industrial Average's 243-point turnaround. Ambac, which guarantees more than $500 billion in debt, climbed the most in three weeks after CNBC reported that the bailout to salvage its AAA credit rating may be announced next week.

This will cheer us up, if it in fact turns out to be true, said Bill Stone, who helps oversee $77 billion as chief investment strategist at PNC Wealth Management in Philadelphia. People are buying into the story.

The Standard & Poor's 500 Index climbed 10.58 points, or 0.8 percent, to 1,353.11, ending the week up 0.2 percent. The Dow average added 96.72, or 0.8 percent, to 12,381.02. The Nasdaq Composite Index increased 3.57, or 0.2 percent, to 2,303.35. About two stocks gained for every one that fell on the New York Stock Exchange.

Stocks dropped earlier, led by financial shares, on concern that profits at brokerage firms will decline and lower demand for mortgages will curb growth at Fannie Mae and Freddie Mac. Saving Ambac's AAA credit rating for the municipal and asset- backed securities guaranty units would help banks and debt investors limit losses.

Nine of 10 industry groups in the S&P 500 ended the day higher, as the rally in the final half hour reversed declines that earlier had sent every group except for one lower.

Ambac Speculation

Ambac, the second-largest bond guarantor, climbed $1.48, or 16 percent, to $10.71 after CNBC on-air editor Charles Gasparino said the bailout may be announced on Monday or Tuesday, citing bankers working on the deal. Gasparino also said the entire deal could fall apart. The Financial Times reported that banks including Citigroup Inc., Wachovia Corp. and Barclays Plc are lining up to provide $2 billion to $3 billion to Ambac.

The company is exploring capital-raising alternatives and has had discussions with various parties, Douglas Renfield-Miller, an executive vice president at Ambac, said in a telephone interview. He declined to elaborate.

AIG, the largest insurance company, added $1.29 to $48.88. JPMorgan, the third-biggest U.S. bank, climbed 86 cents to $43.93, erasing a 2.7 percent decline. MBIA Inc., the world's biggest bond insurer, gained 28 cents to $12.18 after earlier falling as much as 9.7 percent.

There's some possibility that some of the heat on the financials because of dysfunctional credit markets will be removed, David Kotok, who helps oversee $900 million as chief investment officer of Cumberland Advisors Inc. in Vineland, New Jersey, said in an interview on Bloomberg Radio.

$2.4 Trillion Insured

Speculation about whether the companies in the bond- insurance industry will maintain the AAA credit ratings they rely on to insure about $2.4 trillion in securities has contributed to larger-than-average price swings in the U.S. stock market. Intraday moves in the Dow industrials averaged 234 points this week, more than three times the average of a year ago.

The S&P 500 has lost 7.8 percent this year, while the Dow has dropped 6.7 percent on concern the worst housing slump in a quarter century will drag the economy into a recession.

Federal Reserve Bank of Dallas President Richard W. Fisher said today the U.S. will probably see slower economic growth rather than a deeper slump.

The most likely scenario is that the U.S. will avoid a prolonged period of negative economic growth, Fisher said during an interview today before a speech in Fort Worth, Texas, without mentioning the term recession. He also said he's hearing increasing expressions of concern about inflation from executives he speaks with, which has gotten my attention.

Financials Turn Around

The CNBC report sparked a turnaround in the S&P 500 Financials Index, which had dropped as much as 1.9 percent after Sanford C. Bernstein & Co. analyst Brad Hintz slashed his first- quarter profit estimates for U.S. securities firms and Merrill Lynch & Co.'s Kenneth Bruce said the worst housing market in a quarter century will stifle earnings at Fannie Mae and Freddie Mac through 2011. The financials ended the day up 1.6 percent, with 81 of its 92 members posting gains.

Goldman Sachs Group Inc., the biggest U.S. securities firm, gained $2.54 to $177.71 after earlier dropping as much as 2.2 percent. Lehman Brothers Holdings Inc. added 8 cents to $54.22, recovering from a 3.2 percent tumble. Bear Stearns Cos. increased $2.93 to $85.16.

Hintz cut his first-quarter earnings estimates for the firms by more than 40 percent, saying slumping credit markets, combined with weak revenue from underwriting and advisory fees, will hurt profits.

Fannie, Freddie

Fannie Mae slipped 27 cents to $28.72. Freddie Mac fell $1.14 to $26.61. Bruce downgraded the shares to sell from neutral and said the companies may report significant losses in their fourth-quarter results.

Discover Financial Services added 94 cents to $15.10. Morgan Stanley advised buying shares of the fourth-largest credit-card network, saying it will likely report earnings that top analysts' consensus estimates this year because of lower- than-expected credit losses.

Express Scripts Inc. gained $1.55 to $66.31. The third- largest U.S. manager of drug benefits raised its 2008 earnings forecast and reported profit that beat analysts' estimates as clients used a higher proportion of cheaper generic medicines.

Intuit Tumbles

Intuit Inc. plunged the most in the S&P 500 after the largest maker of tax-preparation software trimmed its annual profit forecast because of slowing sales growth to small companies and a higher tax rate. The shares dropped $2.74, or 9.2 percent, to $27.05 for the biggest decline since February 2006.

Makers of computer chips and related machines retreated after a trade group said North American orders for semiconductor equipment fell 23 percent in January from a year ago.

KLA-Tencor Corp., the second-largest U.S. maker of chip- manufacturing equipment, fell 41 cents to $42.54. Intel Corp., the biggest chipmaker, declined 48 cents to $19.82.

Some 1.42 billion shares changed hands on the NYSE, 11 percent less than the three-month daily average.

With no major economic reports due today, investors will look to next week for further clues on the economy. A report on Feb. 25 will probably show existing home sales declined in January, while a release on Feb. 27 is likely to show a drop in durable goods orders for the same month, according to economists' estimates compiled by Bloomberg News.

Small Caps Slump

The Russell 2000 Index fell 0.1 percent today after Credit Suisse Group said smaller companies may post bigger declines than their larger counterparts as tougher bank lending standards cut their profits.

Nicor Inc. dropped $1.04 to $36.36, the lowest price since April 2005. The Naperville, Illinois-based natural-gas utility forecast 2008 profit of as much as $2.40 per share. That compares with the $2.82 average of analysts' estimates compiled by Bloomberg.

Europe's Dow Jones Stoxx 600 Index fell 0.8 percent after RWE AG, Germany's second-largest utility, reported its first loss since 2000 and Morgan Stanley cut its profit forecast for Renault SA, a French carmaker.

The MSCI Asia Pacific Index lost 0.6 percent as Toyota Motor Corp. and Samsung Electronics Co. declined.

Treasury two-year notes posted their first weekly drop this year and the dollar fell to a three-week low against the euro.