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Market Shrugs Off Worry, Leaps 200 Points

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By TIM PARADIS, The Associated Press

Published: February 1, 2008

NEW YORK - Wall Street ended a frenetic January with a huge advance Thursday after investors set aside worries about bond insurers and grew more optimistic that the Federal Reserve's interest rate cuts will indeed help lift the economy. The Dow Jones industrials rose more than 200 points but had its worst January in eight years.

The day's trading emerged as a microcosm of the entire month, with the Dow first falling more than 190 points, and then by late afternoon, soaring more than 250.

It capped a January that saw frequent triple-digit moves in the blue chips as investors alternately anguished about the fallout from the housing and mortgage crisis and celebrated any news that indicated the damage might limited.

Still, the major indexes ended the month with heavy losses, evidence of how dejected investors have become. The Fed's 1.25 percentage points in interest rate cuts, designed to stave off a recession, ultimately gave Wall Street some reassurance that the economy might soon show signs of recovery - although the market still gyrated after the latest 0.50 percentage point cut on Wednesday.

Bond insurer MBIA Inc. also mollified Wall Street on Thursday when its chief executive, Gary Dunton, told investors he is confident the company can retain its crucial AAA credit rating and that MBIA still will be able to raise fresh capital.

The notion that bond insurers could perhaps avoid being felled by a rush of claims over swaths of bad debt offered solace for investors who have for months worried about the fallout from a sharp pullback in the housing market and the resulting souring mortgage debt.

"Today is really more of a relief rally because the Fed did what the Street wanted. They did what was expected of them and the MBIA news relieved the fears of some investors," said Ryan Detrick, strategist at Schaeffer's Investment Research in Cincinnati. "For once there's actually maybe some calm coming into Wall Street."

The Dow rose 207.53, or 1.67 percent, to 12,650.36.

For the month, the Dow lost 4.63 percent, its worst January since losing 4.84 percent at the start of 2000. January's pullback was the steepest seen in any month since December 2002.

Broader stock indicators also jumped Thursday. The Standard & Poor's 500 index rose 22.74, or 1.68 percent, to 1,378.55, and the Nasdaq composite index rose 40.86, or 1.74 percent, to 2,389.86.

The Russell 2000 index of smaller companies rose 17.81, or 2.56 percent, to 713.30.

Government bond prices rose. The 10-year Treasury note's yield fell to 3.59 percent from 3.63 percent late Wednesday.

Oil prices slid. March's contract for light, sweet crude fell 58 cents to settle at $91.75 a barrel on the New York Mercantile Exchange.

The rebound in stocks came even as reports on sluggish consumer activity and higher jobless claims reflected weakness in the economy. However, along with the Fed's rate decision, Wall Street this week awaited January's report from the Labor Department on payrolls and unemployment.

Due this morning, the reading could shape sentiment because a strong job market is considered crucial to maintaining consumer spending, which accounts for more than two-thirds of U.S. economic activity.

MBIA's comments about its access to capital and the possibility of raising more seemed to dampen unease about recent moves by rating agencies relating to bond insurers.

Moody's Investors Service and Standard & Poor's have said they are reviewing ratings on MBIA and other bond insurers.

MBIA, which had been down sharply after reporting a $2.3 billion fourth-quarter loss amid heavy write-downs, closed up $1.54, or 11 percent, to $15.50.

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