Stocks erase losses, turn higher

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NEW YORK -- Stocks turned higher Thursday after concerns eased about hefty losses at bond insurer MBIA Inc. and the prospect of downgrades in the bond insurance industry.

Displaying the trademark volatility it has shown in recent months, Wall Street appeared to shrug off for the time being some concerns about the vulnerability of the financial sector amid continuing credit market problems.

MBIA CEO Gary Dunton told investors in a conference call Thursday that the business of packaging debt, which has lately caused headaches for investors, will bounce back. He expects some of the products will be less exotic, and presumably easier to evaluate, according to Dow Jones Newswires.

Dunton's comments appeared to reassure investors that despite the problems investors are having in sorting solid debt from that tainted by bad debts on mortgages, that a collapse of the bond insurance business is not necessarily in the offing.

The market's bounce higher after a morning pullback comes a day after the Federal Reserve again lowered interest rates for the second time in little more than a week.

Still, reports on sluggish consumer activity and higher jobless claims reflected the uncertainty facing the country; along with the insurers' problems, they underscored to the market that the Federal Reserve's massive interest rate cuts this month are not going to be a miracle cure for the economy's ills.

Wall Street fell sharply in early trading Thursday, then regained ground, turning higher in late morning as investors sorted through the bad news and tried to determine whether 1.25%age points in rate cuts by the Fed — including a 0.50 point reduction Wednesday — would indeed help support the economy.

"It seems to be a tug-of-war between 'Is this a systemic problem?' or 'Is this more of a cyclical problem?' that can be corrected with sort of the standard fare of monetary stimulus," said Kevin Gaughan, portfolio manager and equity strategist at Wells Capital Management in Milwaukee.

In midday trading, the Dow Jones industrial average rose 84.46, or 0.68%, to 12,527.29. The Dow, which had been down more than 190 points in early trading at times gained more than 100 points.

Broader indexes also rose. The Standard & Poor's 500 index rose 10.53, or 0.78%, to 1,366.34, and the Nasdaq composite advanced 15.44, or 0.66%, to 2,364.44.

Government bond prices fell as stocks rebounded. The 10-year Treasury note's yield, which moves opposite its price, rose to 3.64% from 3.63% late Wednesday.

The dollar was mostly lower against most major currencies, and gold prices rose.

Oil prices slid after Wall Street's decline and a report that U.S. crude stockpiles rose last week. A barrel of light, sweet crude fell $1.85 to $90.48 a barrel on the New York Mercantile Exchange.

MBIA's comments about its access to capital and possible plans to raise more seemed to dampen unease about recent moves by rating agencies. Fitch Ratings already downgraded Ambac Financial Group Inc., Security Capital Assurance Ltd. and Financial Guaranty Insurance Co. Meanwhile, Moody's Investors Service and Standard & Poor's said they are reviewing ratings on MBIA and other bond insurers.

S&P also forecast a widening array of financial institutions would ultimately face mortgage-securities losses totaling more than $265 billion.

MBIA, which had been down sharply after reporting a $2.3 billion fourth-quarter loss amid heavy write-downs, rose $1.18, or 8.5%, to $15.14 after Dunton's comments.

Investors seemed unfazed by lackluster economic data.

The Commerce's Department's personal consumption and income report for December underscored the fact that the economy continued to weaken as 2007 ground to its end. Consumer spending in December — the year's peak shopping season — had its weakest performance since September 2006. The report's price index for personal consumption expenditures, a gauge of inflation closely monitored by the Fed, rose 0.2% in December from November levels. The department said personal incomes rose 0.5% last month.

Separately, the Labor Department reported a startling jump of 69,000 new jobless claims in the latest week, pushing the total to 375,000. That the highest level since early October and the largest increase since September 2005. Thomson/IFR had forecast a gain of just 14,000 new claims.

The Russell 2000 index of smaller companies rose 8.08, or 1.16%, to 703.57.

Overseas, Japan's Nikkei closed up 1.85%. In Europe, London's FTSE 100 closed up 0.73%, Frankfurt's DAX lost 0.34% and Paris' CAC 40 fell 0.08%.
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