(Updates with U.S. markets, changes byline, dateline, previous
LONDON)
By Neil Shah
NEW YORK, Jan 31 (Reuters) - U.S. and European stocks rose
on Thursday, recovering from early losses, after a U-turn in
shares of troubled bond insurers and financial firms offset
fears about the effects of a slowing U.S. economy.
Investors who had flocked to safe-haven U.S. Treasuries
earlier in the session promptly reversed course as stocks rose,
crimping some gains in this market, though the price of oil
fell more than 2 percent on fears of a looming U.S. recession.
Shares of MBIA Inc <MBI.N>, the world's largest bond
insurer, jumped 8.5 percent to $15.15, erasing early losses, as
the company's chief executive said rating agency Standard &
Poor's has indicated that MBIA's capital plan is sufficient to
maintain its triple-A credit rating.
The comments came a day after financial shares tumbled
after an on-air editor for business channel CNBC said he
believed that MBIA and rival bond insurer Ambac <ABK.N> would
lose their top credit ratings.
For weeks, investors across Wall Street have worried about
a ratings downgrade of the bond insurers, which guarantee
roughly $2.5 trillion of securities. A ratings cut could pose
broader problems for financial firms and markets.
"There's MBIA and Ambac reversing," said Steve Goldman,
market strategist at Weeden & Co., in Greenwich, Connecticut.
"MBIA's coming out and saying it's not as bad as everyone
thought it would be."
Meanwhile, U.S. government data released on Thursday showed
the number of workers filing new claims for unemployment
benefits -- a measure of the job market's health -- rose more
than expected last week. It was the largest rise in more than
two years and the highest level since the aftermath of
Hurricane Katrina in 2005.
The news comes a day before the Labor Department's monthly
payrolls report, considered a key statistic in terms of sizing
up how the economy is faring.
"People are going to be nervous going into the employment
number tomorrow. I think anything that tends to point us in the
direction of (job weakness) is going to be a negative," said
Owen Fitzpatrick, head of U.S. equity group at Deutsche Bank
Private Wealth Management in New York.
The Dow Jones industrial average <> was up 88.77 points,
or 0.71 percent, at 12,531.60. The Standard & Poor's 500 Index
<.SPX> was up 9.66 points, or 0.71 percent, at 1,365.47. The
Nasdaq Composite Index <> was up 15.58 points, or 0.66
percent, at 2,364.58.
In Europe the FTSEurofirst 300 index of top European shares
closed 0.10 percent higher, with Britain's FTSE 100 up 0.7
percent. Financial shares closed mostly lower, led by UBS
<UBSN.VX> after Switzerland's banking watchdog said UBS and
rival Credit Suisse could face more write-downs.
Both banks, however, finished off earlier lows, and gains
in top mobile phone maker Nokia <NOK1V.HE> and chemicals maker
BASF <BASF.DE> helped markets end higher.
Earlier, Japan's Nikkei managed to squeeze out a 1.9
percent gain on the day but ended the month down a whopping
11.2 percent -- its worst monthly performance in nearly 8
years.
CREDIT WOES MUFFLE FED CUT
But investors and analysts remain worried about more
troubles for U.S. bond insurers and financial firms.
"The fear of the unknown continues to dominate the
markets," said Andy Brenner, a market analyst at MF Global. "It
is now a foot race between investors into the monolines and the
potential downgrades."
Late on Wednesday, rating agency Standard & Poor's rattled
financial markets by saying credit losses for financial
institutions could eventually swell to about $265 billion.
The rating agency also cut, or said it may cut, its ratings
on over $500 billion of mortgage investments.
That overshadowed the Fed's move on Wednesday to slash its
key fed funds rate by 50 basis points to 3 percent -- the
lowest since June 2005 -- following last week's emergency 75
basis point cut to halt a sharp slowdown in an economy
struggling with a housing slump and credit crunch.
TREASURIES, DOLLAR MIXED
The combination of worries about the economy and bond
insurers is keeping U.S. government bonds generally well bid,
though they lost some gains on the positive MBIA news.
Benchmark 10-year notes were down 2/32 in price to yield
3.6487 percent. Two-year notes were down 1/32 to yield 2.1692
percent.
The U.S. dollar fell against the yen but rose against the
euro, with dealers focused primarily on cutting back on risky
trades a day ahead of the closely watched January U.S.
employment report.
(Additional reporting by Caroline Valetkevitch, Kevin
Plumberg, Pedro Nicolaci da Costa, and Gene Ramos in New York,
and Ian Chua in London; Editing by Leslie Adler)
