Stocks rise on relief about bond insurers

NEW YORK » Wall Street ended its worst January since 1990 with a huge advance yesterday after investors set aside worries about bond insurers and grew more optimistic that the Federal Reserve's interest rate cuts will indeed help lift the economy.

The Standard & Poor's 500 index, the market measure most closely followed by professional traders, lost 6.1 percent for the month, its biggest January drop since 1990, when it fell 6.88 percent.

The Fed's 1.25 percentage points in interest rate cuts, designed to stave off a recession, ultimately gave Wall Street some reassurance that the economy might soon show signs of recovery -- although the market still gyrated after the latest 0.50 percentage point cut on Wednesday.

Bond insurer MBIA Inc. also mollified Wall Street yesterday when its chief executive, Gary Dunton, told investors he is confident the company can retain its crucial AAA credit rating and that MBIA will still be able to raise fresh capital. MBIA closed up $1.54, or 11 percent, to $15.50.

The notion that bond insurers could perhaps avoid being felled by a rush of claims over swaths of bad debt offered solace for investors who have for months worried about the fallout from a sharp pullback in the housing market and the resulting souring mortgage debt.

"Today is really more of a relief rally because the Fed did what the Street wanted. They did what was expected of them and the MBIA news relieved the fears of some investors," said Ryan Detrick, strategist at Schaeffer's Investment Research in Cincinnati. "For once there's actually maybe some calm coming into Wall Street."

But MBIA's comments won't erase all of Wall Street's concerns about the credit markets.

"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 at Wells Capital Management.

The Dow rose 207.53, or 1.67 percent, to 12,650.36.

For the month, the Dow lost 4.63 percent -- its worst January since losing 4.84 percent at the start of 2000.

Broader stock indicators also jumped yesterday. The S&P 500 index rose 22.74, or 1.68 percent, to 1,378.55, and the Nasdaq composite index rose 40.86, or 1.74 percent, to 2,389.86. The Russell 2000 index of smaller companies rose 17.81, or 2.56 percent, to 713.30.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where consolidated volume totaled 5.22 billion shares, compared with 4.64 billion shares seen Wednesday.

Government bond prices rose. The 10-year Treasury note's yield, which moves opposite its price, fell to 3.59 percent from 3.63 percent late Wednesday.

The dollar was mixed against most major currencies, while gold prices rose.

Oil prices slid. Light, sweet crude for March delivery fell 58 cents to settle at $91.75 a barrel on the New York Mercantile Exchange.

Wall Street awaits the Labor Department's January report on payrolls and unemployment. Due this morning, the reading could shape sentiment because a strong job market is considered crucial to maintaining consumer spending, which accounts for more than two-thirds of U.S. economic activity.