"U.S. stocks got a boost Tuesday from plans by billionaire investor Warren E. Buffett to provide new insurance for $800 billion in municipal bonds, which could ease the pressure on traditional insurers that initially guaranteed the bonds but now find their own finances in jeopardy.

Buffett's company, Berkshire Hathaway, has approached three major bond insurers -- Ambac Financial Group, MBIA and Federal Guaranty Insurance Co. -- with an offer to provide reinsurance for the bonds, he said in an early morning interview on CNBC.

Bond insurers enjoyed many profitable years based on their longtime business of insuring low-risk municipal bonds, which governments use to raise money for schools, roads and other public projects. But in the past decade, the companies began insuring riskier securities related to subprime mortgages, loans to people with weak credit histories.

Those securities have suffered steep losses in recent months, putting the insurance firms' coveted AAA ratings in danger. Credit-rating agencies have notified the insurers they could be downgraded, which would in turn would lead to lower ratings for the bonds themselves and higher costs for governments to raise money. This could also trigger billions more in write-downs at Wall Street investment banks, which hold subprime-related securities guaranteed by the bond insurers.

Buffett's plan slices off the healthy portfolio of municipal bonds and leaves bond insurers with billions of dollars of troubled subprime-related securities.

"This would just eliminate one major cloud from the market," Buffett said.

The stock market seemed to agree, with the Dow Jones industrial average of 30 blue-chip stocks rising 133.40 points, or 1.1 percent, to close at 12,373.41. The Standard & Poor's 500-stock index, a broader market measure, gained 9.73, or 0.7 percent, to 1348.86. The tech-heavy Nasdaq composite index was down ever so slightly at 2320.04, falling 0.02.

Stocks also rallied on news of a White House-backed plan put together by six large financial institutions including Bank of America, Citigroup and Countrywide Financial that would delay foreclosures for certain homeowners.

Under Buffett's plan, the bond insurers would essentially pay to have the exposure to municipal bonds they have insured transferred to the books of Berkshire Hathaway Assurance, a bond insurer Buffet established late last year.

Analysts said Buffett's plan, while offering some relief to the credit market, would put bond insurers in a tight spot.

"Everyone's asking, 'Why would they do this?' " said Bob Nelson, a municipal bond analyst with Thomson Financial. He characterized Buffet's plan as a way to resuscitate the ratings of insured municipal bonds rather than save the bond insurers. "I think there's pressure from regulators," he said. "The insurers kind of find themselves backed into a corner."

Regulators have been pushing for a private-sector bailout of bond insurers to ensure that markets keep operating smoothly. Several efforts to rescue bond insurers are under way. A person close to the discussions said Tuesday that one proposed initiative, under which a consortium of eight banks would bail out Ambac, was nearing agreement.

Buffett said in the interview that one of the three bond insurers he approached had already rejected his offer. The other two have yet to respond.

Ambac said it welcomed "any constructive offers to deal with the current uncertain environment" but that it did not believe Buffett's proposal was in Ambac's interest. Company spokesman Peter Poillon said Buffett was not referring to Ambac when he mentioned the rejection. MBIA declined to comment. FGIC did not return a call requesting comment.

Neither did Buffett, a director of The Washington Post Co." (Tomoeh Murakami Tse, The Washington Post, February 13, 2008)