By Amanda Cooper
LONDON, Feb 12 (Reuters) - Banks drove European stocks up by
more than 3 percent on Tuesday after U.S. billionaire investor
Warren Buffett offered to reinsure municipal bonds held by top
bond insurers, soothing some of the most recent credit concerns.
HSBC <HSBA.L> was the top positive influence on the broader
market, rising 4.6 percent, while Santander <SAN.MC> gained 3.8
percent and Barclays <BARC.L> jumped 6.2 percent.
The FTSEurofirst 300 index <> of leading European
shares ended 3.4 percent higher at 1,334.2 points, just shy of
the day's high of 1,334.4, with gains stoked towards the close.
The ratio of advancing issues to decliners was about 14 to one
by the close of trading hours.
U.S. shares were also sharply higher.
Buffett told CNBC television the offer, which he extended to
bond insurers MBIA <MBI.N>, Ambac <ABK.N> and FGIC, would cover
$800 billion in municipal bonds.
Shares in MBIA and Ambac have fallen in the last 12 months
between 80 and 90 percent, battered by concern over their
exposure to the subprime crisis.
Bond insurers guarantee more than $2.4 trillion in debt and
have been struggling to hold on to their top credit ratings
after suffering heavy losses from backing mortgage securities
that have plunged in value.
"Basically that was driving the market higher today," said
Fortis Bank strategist Philippe Gijsels in Brussels.
"(Buffett) is apparently only looking to buy the good part
of the business, but clearly, it is helpful and shows a number
of things, firstly, there is money around to go into these
markets ... and there is smart money going in."
The FTSEurofirst is still showing a loss of around 11
percent for the year to date as investor confidence in the
outlook for corporate profitability has been shaken by a
spreading economic slowdown.
REVERSAL OF FORTUNES
Financials, and insurers in particular, came under pressure
early in the day as Monday's news of an accounting hole in the
derivatives portfolio of American International Group <AIG.N>
triggered renewed fears over their subprime exposure.
But virtually all components of the insurance sector had
recouped those losses by the afternoon. Swiss Re <RUKN.VX>
gained 3.6 percent, Munich Re <MUVGn.DE> rose 2 percent and
Royal & Sun Alliance <RSA.L> gained 4.4 percent.
Shares in Credit Suisse <CSGN.VX> pared earlier losses
incurred after the Swiss bank scaled back its full-year 2007
subprime writedowns, but also reported a 49 percent fall in
fourth-quarter profit. Subprime writedowns in the fourth quarter
were 1.26 billion francs, Credit Suisse said.
"These writedowns are towards the higher end of
expectations, and importantly, there is still significant
residual risk left on the balance sheet," Goldman Sachs analysts
said in a research note.
Credit Suisse shares ended the day up 2.5 percent.
Auto stocks also recovered earlier losses, helped by General
Motors <GM.N>, which posted a loss in the fourth quarter but
said it expected the lacklustre North American market to rebound
in the second half of 2008.
A reading of German investor sentiment that staged a
surprise rise in February also supported the sector. Daimler
<DAIGn.DE> gained 5.3 percent while BMW <BMWG.DE> rose 4.7
percent.
Shares in French carmaker Peugeot <PEUP.PA> added 5.2
percent after WestLB upgraded its recommendation on the stock to
"add" from "hold", saying its recent weakness was overdone.
German truckmaker MAN <MANG.DE> rallied 6.4 percent.
Sanofi-Aventis <SASY.PA> rose 1.9 percent after the
drugmaker unveiled a 6.2 percent rise in quarterly net profit
and a big increase in its 2007 dividend as tight cost controls
offset lower sales.
Miners rallied despite lower base and precious metal prices.
BHP Billiton <BLT.L> gained 4.9 percent, Rio Tinto <RIO.L> rose
5.4 percent and Anglo American <AAL.L> gained 4.7 percent.
Anglo-Swiss miner Xstrata <XTA.L> rose 0.4 percent. Shares
initially fell after the Financial Times said the company had
rejected a cash-and-shares takeover approach from Brazil's Vale
<VALE5.SA> pitched at just under 40 pounds a share, or 39
billion pounds ($76 billion).
The paper cited a person close to Vale saying the Brazilian
group was "close to walking away from the whole thing".
Xstrata declined to comment.
(Additional reporting by Eva Kuehnen and Peter Starck in
Frankfurt and Sitaraman Shankar in London; Editing by David
Holmes)
