Wall Street Whiplash: Dow Closes Up 200 Points

By TIM PARADIS AP Business Writer

NEW YORK (AP) — Stocks bounded higher Thursday after concerns eased about hefty losses at bond insurer MBIA Inc. as did fears of potentially ruinous downgrades in the bond insurance industry.

The Dow Jones industrials jumped more than 250 points. Displaying the volatility that has become almost routine on Wall Street in recent months, stocks reversed a sizable pullback to surge higher after investors pushed back their concerns about the vulnerability of the financial sector amid continuing credit market problems.

MBIA Chief Executive Gary Dunton reassured Wall Street Thursday after saying he is confident the company can retain its crucial AAA credit rating and that MBIA will still be able to raise fresh capital, according to Dow Jones Newswires.

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

The market’s bounce higher came a day after the Federal Reserve lowered interest rates for the second time in little more than a week.

While investors initially cheered the Fed’s widely expected move, the concerns about bonds that arose late Thursday punctured the market’s gains Wednesday.

But on Thursday investors seemed optimistic that the cheaper access to cash brought by the Fed’s rate cut could help stimulate the economy. Investors seemed unfazed by lackluster economic data that arrived Thursday.

However, along with the Fed’s rate decision, Wall Street this week has been awaiting the Labor Department’s January report on payrolls and unemployment.

Due Friday morning, the report could shape sentiment in the week’s final session as a strong job market is considered crucial to maintaining consumer spending, which accounts for more than two-thirds of U.S. economic activity.

Wall Street fell sharply in the early going Thursday, then regained ground, turning higher by late morning as investors sifted through the day’s news and tried to determine whether 1.25 percentage points in rate cuts by the Fed — including the 0.50 point reduction Wednesday — would indeed help support the economy.

“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.” In the final half-hour of trading, the Dow jumped 251.10, or 2.02 percent, to 12,693.93.

The Dow had been down more than 190 points in early trading. Broader indexes also surged. The Standard & Poor’s 500 index rose 27.02, or 1.99 percent, to 1,382.83, and the Nasdaq composite advanced 49.06, or 2.32 percent, to 2,398.06.

(Copyright 2008 by The Associated Press. All Rights Reserved.)