(Adds U.S. market close)
By Herbert Lash
NEW YORK, Feb 22 (Reuters) - U.S. stocks rose in a
late-stage recovery on Friday as a report of a bailout on No. 2
bond insurer Ambac allowed investors to shake off fears of
deeper problems in credit markets and a U.S. recession.
A late afternoon report on CNBC that banks rescuing Ambac
Financial Group <ABK.N> could announce a plan as soon as Monday
or Tuesday sparked a rally in financial shares and turned the
market around from steep losses.
The Dow industrials closed up 97 points, recovering from
earlier losses of more than 100 points. The Nasdaq and S&P 500
also rose after earlier also being down more than 1 percent.
U.S. Treasury debt prices eased after stocks slashed losses
on the Ambac news, causing investors to dump safe-haven U.S.
government debt.
"Talk of an Ambac bailout to be announced over the weekend
has given stocks a late boost to the detriment of bonds," said
Andrew Brenner, senior vice president at MF Global in New York,
in an email message.
A person familiar with the matter told Reuters that a
bailout of Ambac may be announced on Monday or Tuesday.
Ambac, the second-largest U.S. bond insurer, is facing
billions of dollars of expected losses after guaranteeing bonds
linked to subprime debt and other risky assets.
Banks working with Ambac include Barclays Plc <BARC.L>, BNP
Paribas <BNPP.PA>, Citigroup Inc <C.N>, Allianz's <ALVG.DE>
Dresdner Bank, Royal Bank of Scotland Group Plc <RBS.L>,
Societe Generale <SOGN.PA>, UBS AG <UBSN.VX> and Wachovia Corp
<WB.N>.
The details of the deal are still being worked out and the
plan may fall through, the source said.
The S&P Financial index rallied 1.58 percent on the news,
reversing losses.
The dollar earlier fell to three-week lows against the euro
and the yen rallied broadly as investors shunned risky trades
after a brokerage downgrade of the top two U.S. home-funding
companies, Fannie Mae and Freddie Mac.
The Dow Jones industrial average <> was up 96.72
points, or 0.79 percent, at 12,381.02. The Standard & Poor's
500 Index <.SPX> was up 10.58 points, or 0.79 percent, at
1,353.11. The Nasdaq Composite Index <> was up 3.57
points, or 0.16 percent, at 2,303.35.
Outside the United States, fears that a credit crisis could
deepen and heightened worries of a U.S. recession had earlier
dragged stocks lower.
In Europe, shares ended down as downbeat results from
Germany's RWE <RWEG.DE> hit utilities and fears of a U.S.
recession hurt banks. In Japan, shares also fell on fears of a
U.S. recession and shares of exporters fell as the yen
strengthened.
The FTSEurofirst 300 index <> of top European shares
ended down 0.8 percent at 1,320.04 points, and is now off
almost 13 percent since the start of the year.
"The markets are being pulled between information on the
here and now, which is quite discouraging, and hopes that more
aggressive action to try to reflate the U.S. economy in say
nine months' time will (make things) look a lot better," said
Andrew Bell, a European strategist at Rensburg Sheppards.
A note from Merrill Lynch recommending investors sell
Fannie Mae <FNM.N> and Freddie Mac <FRE.N> as they face more
pain due to further deterioration in financial markets and
weakening credit conditions had soured markets.
In addition, the release of revised data for U.S. wholesale
price inflation renewed concerns about the U.S. economy as
calculations do not affect unadjusted data, which still shows
its Producer Price Index on a sharp ascending trend.
Compared with December 2006, overall producer prices were
up 6.3 percent last year for the largest increase since a 7.1
percent advance in 1981, the U.S. Labor Department said.
The department said that wholesale price inflation was more
muted at the end of 2007 than previously thought.
The broader European market gained for the second week in a
row, but sentiment has been plagued by worries about the U.S.
economy and corporate profitability.
"The markets are being pulled between information on the
here and now, which is quite discouraging, and hopes that more
aggressive action to try to reflate the U.S. economy in say
nine months time, things will look a lot better," said Andrew
Bell, a European strategist at Rensburg Sheppards.
Oil rose to near $99 a barrel as a Turkish incursion into
Iraq and cold weather in the U.S. Northeast outweighed economic
concerns.
U.S. crude <CLc1> settled up 58 cents to $98.81 a barrel
after hitting $99.37 earlier in the session, as snow blanketed
the U.S. Northeast and boosted heating oil futures. London
Brent crude <LCOc1> settled up 77 cents to $97.01 a barrel.
The dollar declined to three-week lows against the euro as
the euro zone's surprising growth in the service sector showed
a clear contrast with the flagging U.S. economy.
The data dampened expectations the European Central Bank
will cut interest rates in the near term, in contrast to
expectations of further rate cuts by the U.S. Federal Reserve.
The gold contract for April delivery at the COMEX division
of the New York Mercantile Exchange <GCJ8> settled down $1.40
at $947.80 an ounce, trading between $938.10 and $953.00.
The April contract had scaled a record high of $958.0 on
Thursday.
(Editing by Leslie Adler)
