(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, Feb 25 (Reuters) - Global stocks gained ground on
Monday in jittery trading as investors weighed the prospects
for a much-anticipated rescue of a leading U.S. bond insurer
that could help ease a global credit crunch.
U,S. Treasury prices fell and European credit spreads
tightened on the planned bailout of Ambac Financial Group Inc
<ABK.N>, the No. 2 U.S. bond insurer.
A bailout would help limit the damage from the credit
crisis, which has shaken the banking sector and threatened to
slow economic growth more broadly.
The dollar and euro gained against the yen as the potential
Ambac bailout boosted demand for stocks and other riskier
assets and helped underpin high-yielding currencies such as the
New Zealand dollar.
Investors have been spooked by the threat of credit
downgrades raised by bond insurers' exposure to U.S. subprime
mortgages. The U.S. financial service sector has been
particularly hard hit by credit crisis.
Even with the bond insurer's crisis potentially solved, the
global financial system would still need to work through losses
in the hundreds of billions of billions of dollars for bad
loans.
"Forecasts for these write-downs are continuing to
accelerate... it's tough to get any significant rally with
those numbers overshadowing the market," said Steve Goldman,
market strategist, Weeden & Co. in Greenwich, Connecticut.
The Dow Jones industrial average <> was up 23.28
points, or 0.19 percent, at 12,404.30. The Standard & Poor's
500 Index <.SPX> was up 0.34 points, or 0.03 percent, at
1,353.45. The Nasdaq Composite Index <> was down 0.62
points, or 0.03 percent, at 2,302.73.
Goldman Sachs, itself down 2.7 percent at $173, pressured
financials as it said it expects additional write-downs of
about $1 billion to $12 billion each for several major U.S.
brokers in the first quarter, with Citigroup <C.N> estimated to
record the highest amount of about $12 billion.
The brokerage lowered its first-quarter and 2008 earnings
estimates for Bear Stearns <BSC.N>, Lehman Brothers <LEH.N>,
Morgan Stanley <MS.N>, JPMorgan Chase <JPM.N> and Merrill Lynch
<MER.N> to reflect continued challenges in the credit markets.
Influential Oppenheimer & Co analyst Meredith Whitney also
cut her first-quarter and 2008 earnings estimates for major
U.S. banks. She said bank losses will be the highest in the
past 20 years or more.
The rescue plan for Ambac had been expected to be announced
on Monday or Tuesday, sources said last week. Reports of a
bailout led U.S. stocks to reverse course and post a late-day
rally last Friday.
European shares rose, buoyed by financials amid
consolidation talk, hopes that a Ambac rescue for U.S. bond was
close and as Qatar's $60 billion sovereign wealth fund weighed
investing in Europe's banking sector.
The pan-European FTSEurofirst 300 index <>
unofficially closed 1.7 percent higher at 1,342.65 points, the
highest close since Feb. 4.
Lending support. Qatari Prime Minister Sheikh Hamad bin
Jassim al-Thani said that Quatar, which has bought "under" 2
percent of Credit Suisse <CSGN.VX>, is looking to spend between
$10 billion and $15 billion over the next two years on bank
stakes to diversify the country's economy from oil and natural
gas.
The Nikkei average <> rose more than 3 percent to a
six-week closing high on a newspaper report that said China's
sovereign wealth fund would buy as much as $10 billion in
Japanese stocks and optimism about the Ambac rescue plan.
But Hong Kong blue chips and China plays fell as tumbling
mainland stock markets unnerved investors, prompting a sell-off
of Chinese large caps in the financial and commodity sectors.
MSCI main world equity index <.MIWD00000PUS> was up 0.7
percent.
Treasury prices fell as U.S. stocks firmed on the Ambac
bailout plan but the outlook was uncertain ahead of testimony
from the head of the Federal Reserve later in the week.
Longer-maturity U.S. government bonds were especially
vulnerable to the rise in equities, which wobbled at the open
but were helped by an announcement that Dresdner Bank was
willing to give millions of euros to the cause.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 18/32, with the yield at 3.8731 percent. The 2-year U.S.
Treasury note <US2YT=RR> was down 4/32, with the yield at 2.079
percent.
Against the Japanese yen, the dollar <JPY=> was up 0.67
percent at 107.95 from a previous session close of 107.23.
U.S. crude oil futures bounced higher in volatile as traders
eyed geopolitical turmoil and OPEC's upcoming policy meeting
and weighed rising inventories and the risk of economic
slowdown.
(Reporting by Herbert Lash. Editing by Richard Satran)
