(Updates with Buffett offer to help insurers)
By Natsuko Waki
LONDON, Feb 12 (Reuters) - World stocks rallied while the
low-yielding yen and save-haven government bonds fell on Tuesday
after billionaire investor Warren Buffett offered to take over
liabilities of troubled bond insurers.
His announcement boosted already stronger stocks which took
heart from stronger-than-expected results from GM <GM.N> and a
firmer German economic survey.
Buffett told CNBC his Berkshire Hathaway offered to take
over liabilities of "monoline" insurers, which provide cover
against default in securitised debt, in a plan that would cover
$800 billion in municipal bonds.
These insurers have been facing imminent credit ratings
downgrades due to their exposure to subprime mortgages.
The downgrades were threatening to trigger a wave of forced
selling of debt and prompt banks to take further writedowns --
thus starting a whole new cycle in the global credit crisis.
"Investors are taking this extremely positively, that this
would be a boon for the bond insurers and that we are now
avoiding the doomsday scenario," said T.J. Marta, fixed income
strategist at RBC Capital Markets in New York.
The FTSEurofirst 300 index <> hit the day's highs,
rising 2 percent on the day.
MSCI main world equity index <.MIWD00000PUS> was up 0.8
percent, having hit a 2-1/2 week low on Monday.
U.S. stock futures were up around 0.9 percent <SPc1>.
Earlier, GM reported fourth-quarter results which were
higher than expected and also reached an agreement with the
United Auto Workers Union.
In Europe, the ZEW survey showed German investor morale
improved in February for the first time since May 2007.
Financial stocks underperformed earlier as speculation
intensified of a large writedown at Dutch group ING <ING.AS> and
investors fretted about Credit Suisse's <CSGN.VX> remaining
exposure to the financial crisis.
Credit Suisse trimmed full-year subprime writedowns to 2.0
billion Swiss francs and reported a 49 percent fall in
fourth-quarter net profit.
Experts estimate the credit crisis will eventually cost the
global banking sector around $300-400 billion.
DETERIORATING CREDIT MARKETS
The banking sector might still take a further battering if
credit markets continue to deteriorate, which could force banks
to sell their credit products.
In Europe, the closely-watched iTraxx Crossover index
<ITCRS5EA=GFI> widened to 565 basis points earlier.
"There continues to be speculation of structured credit
unwinds, which is weighing on credit and especially investment
grade," said Jim Reid, credit strategist at Deutsche Bank.
"As spreads widen, so triggers for structured products are
breached which forces them to sell assets which in turn runs the
risk of destabilising other structures."
A plan by Standard Chartered <STAN.L> to provide $7 billion
of backing to its structured investment vehicle (SIV)
Whistlejacket lapsed -- another example of how the credit crunch
is causing problems.
In the currency market, the yen hit the day's lows against
the dollar and euro while the single currency rose to $1.4545
<EUR=>. The March Bund future <FGBLH8> fell 75 ticks.
Elsewhere, platinum hit a record high for the ninth straight
trading day <XPT=>, rising as high as $1,965 an ounce as supply
concerns lingered due to a power crisis in South Africa.
Gold <XAU=> was steady at $919.00 an ounce, holding within
sight of a record high set earlier in February.
U.S. light crude <CLc1> fell 1.3 percent to $92.37 a barrel
as investors focused on a slowing U.S. economy.
(Editing by Mike Peacock)
