(Updates with U.S. market close, adds comment)
NEW YORK, Jan 31 (Reuters) - U.S. and European stocks rose
on Thursday after a U-turn in shares of troubled bond insurers
and financial firms offset fears about the effects of a slowing
U.S. economy, but markets still closed out their worst monthly
performance in years.
Investors who had flocked to safe-haven U.S. Treasuries
earlier in the session reversed course as stocks rallied,
crimping some gains in this market, though the price of oil
fell on fears of a looming U.S. recession.
Shares of MBIA Inc <MBI.N>, the world's largest bond
insurer, jumped 7.5 percent to $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 is "reassurance from MBIA today that they have
sufficient capital to cover its needs," said Tom Sowanick,
chief investment strategist for Clearbrook Financial LLC in New
York. "Everybody was all over the CNBC report ... that there'd
be a major downgrade coming on the monolines and the market has
yet to see it."
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 207.53
points, or 1.67 percent, at 12,650.36. The Standard & Poor's
500 Index <.SPX> was up 22.66 points, or 1.67 percent, at
1,378.47. The Nasdaq Composite Index <> was up 40.86
points, or 1.74 percent, at 2,389.86.
The Dow industrials fell 4.9 percent in January, its worst
month since December 2002. The S&P 500 fell 6.4 percent in
January, and the Nasdaq Composite fell 9.9 percent, marking the
worst months for both indexes since September 2002.
In Europe, the FTSEurofirst 300 index of top European
shares closed 0.10 percent higher, even as it also had its
worst month since September 2002, 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 eight
years.
CREDIT WOES STILL TOP CONCERN
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."
The combination of worries about the economy and bond
insurers has kept U.S. government bonds generally well bid,
though they lost some gains on the positive MBIA news.
Benchmark 10-year notes <US10YT=RR> were up 1/32 in price
to yield 3.636 percent. Two-year notes <US2YT=RR> were
unchanged to yield 2.158 percent.
In currency markets, meanwhile, the dollar edged higher
against the euro and was little changed against the yen as
uncertainty ahead of the U.S. jobs report injected a note of
caution and dealers cut back on risky trades.
U.S. economic worries also dented the price of oil on signs
that U.S. fuel demand is starting to buckle under recessionary
pressures. U.S. light crude oil for March delivery <CLc1>
settled down 58 cents at $9.175.
The gold futures market, however, was able to ignore the
sliding energy prices to finish slightly higher. On the Comex
division of the New York Mercantile Exchange, gold <GCJ8>
finished up $1.70 at $928.00 an ounce.
(Additional reporting by Ellis Mnyandu, Neil Shah, Caroline
Valetkevitch, Kevin Plumberg, Pedro Nicolaci da Costa, and Gene
Ramos in New York, and Ian Chua in London; Editing by Leslie
Adler)
(Reporting by Nick Olivari)
