Leading off this Week

Saturday, February 23, 2008

NEW YORK (MarketWatch) -- Investors hope that a last-minute plan to bail out ailing bond insurers next week will spark optimism for a market that has remained plagued by the ongoing credit crisis and worries that the economy is on the brink of recession.

Stocks rallied late Friday, reversing earlier sharp losses, on reports that a plan by several big banks to bail out struggling bond insurer Ambac Financial

AMBAC Inc

Last: 10.71+1.48+16.03%
4:02pm 02/22/2008

This leaves us with a very positive entry into next week," said Ken Tower, chief market strategist at Covered Bridge Tactical. "This is what the market had been waiting for the past several weeks."

The Friday rally also helped stocks to mostly reverse weekly declines. For the week, the Dow industrials gained 0.3%, the S&P advanced 0.2%, while the Nasdaq fell 0.8%.

"For the past week and a half, we've had a lot of bad news but the stock market had resisted the obvious temptation to go down hard, and was looking for a rally," Tower said. "A resolution [to the bond insurers' problem] is the last catalyst that this market was looking for."

Bailout

Bond insurers Ambac and MBIA have come under increasing pressure from an ongoing credit crisis, which also threatens to push the economy into recession.

Credit agencies have delayed a decision to downgrade the insurers' ratings until the end of February, leaving room for several large banks and New York state regulators to come out with a rescue plan.

On Friday, news channel CNBC reported there had been significant progress on the plan, which would bolster the company's capital to save its crucial AAA rating.