Buffett's rally pushes Dow up 133

Warren Buffett gave Wall Street a rally today that was strong enough to survive a sell-off in tech, metals and coal stocks.

At the close, the Dow Jones industrials were up 133 points, or 0.8%, to 12,373. The Standard & Poor's 500 Index added nearly 10 points, or 0.7%, to 1,349.

But the Nasdaq Composite Index finished the day down slightly at 2,320 as key stocks Apple (AAPL, news, msgs), Google (GOOG, news, msgs), Research In Motion (RIMM, news, msgs) and Amazon.com (AMZN, news, msgs) all fell back.

Apple was off 3.6% to $124.86. Research In Motion was off 3.1% to $91.50. Google fell 0.6% to $518.09, and Amazon.com slipped 1% to $74.45.

The Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, tumbled more than 13 points, 0.7%, to 1,781.

There was a sense at the end of the day that the rally had been a bit of a disappointment. The Dow had been up as much as 229 points at 11 a.m. ET but saw the gains nearly halved. And the Nasdaq pullback clearly rankled. Plus dreadful guidance from building materials maker Masco (MAS, news, msgs) didn't help the market's mood. Masco, maker of Peerless faucets and Behr paints, was down 11% to $19.37 after it said it expects consumer spending to decline this year and existing-home sales this year to be soft.

The Buffett rally -- the third gain for the Dow and S&P 500 in four days -- began after the CEO of Berkshire Hathaway (BRK.A, news, msgs) told CNBC that his company had offered to help out three troubled bond insurers by reinsuring $800 billion in municipal bonds.

Buffett's proposal would reinsure bonds the companies cover in exchange for a payment of 1.5 times the premium they receive.

But as the day wore on, it became clear that the Buffett proposal didn't solve the bond insurers' problems; indeed Ambac Financial Group (ABK, news, msgs) has already turned Buffett's offer down because Buffett would take their best assets. Shares of Ambac and MBIA (MBI, news, msgs) -- were down 15% each to $8.90 and $11.50, respectively. The third big bond insurer, Financial Guaranty, is owned by a consortium of companies, including Blackstone Group (BX, news, msgs), the private equity company. Blackstone was down 1.1% to $17.59. Berkshire Hathaway was off slightly at $139,700.

Buffett's offer gave many investors a sense that someone was trying to solve a big problem that's affected credit markets around the world. "It's another potential solution to some of the credit problems," Security Global Investors money manager Mark Bronzo said to Bloomberg News.

Bond insurers typically insure municipal bonds. But they also got into the business of insuring many of the securities backed by subprime mortgages. And those mortgages have developed so many problems so fast that many investors feared the insurers could possibly fail.

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With the recent turmoil in the mortgage and credit markets, the ratings of many bonds that these companies insure have been downgraded, putting the companies' AAA ratings at risk. And if the companies lose their AAA ratings, there are a number of institutions that would no longer be permitted to keep their bonds. Subsequent sales would increase the supply and disrupt markets, Buffett said.

Financial stocks were by far the strongest group. The Standard & Poor's Banking Index ($BIX.X) was up 1.5%. The Philadelphia KBW Insurance index ($KIX) was up 2.1%. But Arch Coal (ACI, news, msgs) was down 7% to $50.87. U.S. Steel (X, news, msgs) fell 0.8% to $99.48, and Freeport-McMoRan Copper & Gold (FCX, news, msgs) was off 0.8% to $92.73.

Buffett wasn't the only catalyst

With all due respect to the Oracle of Omaha, Buffett wasn't the only reason the market was rallying. Some other causes:

• Short-sellers were taking profits in a big way. The S&P 500 is up nearly 7% from bottoms reached on Jan. 22 and Jan. 23. Monday's rally was stronger than it appeared because the S&P 500 and the Dow were so affected by the drubbing absorbed by insurance giant American International Group (AIG, news, msgs). AIG, down 11% on Monday, was up 3.1% today to $46.14.

• There was movement in helping trouble homeowners. The government and six big lenders announced a plan to give homeowners facing foreclosure an extra 30 days to try to come up with a refinancing plan.

• General Motors (GM, news, msgs) offered a plan to cut payroll costs substantially. GM reported weak fourth-quarter results. But it said it would offer buyouts to all 74,000 North American factory workers and replace them with younger workers with less-generous benefits.

• Commodities prices were lower. Crude oil closed down 81 cents a barrel in New York to $92.78. Prices for wheat, corn, soybeans, gold and silver were moving down.

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$92.78	$93.59	-$0.81	1.12%	-3.33%
Heating oil (per gallon)	$2.5911	$2.6044	-$0.0133	2.23%	-2.20%
Natural gas (per million BTU)	$8.4360	$8.5310	-$0.0950	4.48%	12.74%
Unleaded gasoline (per gallon)	$2.3680	$2.3962	-$0.0282	2.55%	-4.93%

AMAT beats estimates; Genentech's good news on Avastin

After the close, two closely-watched stocks are moving smartly higher.

Applied Materials (AMAT, news, msgs), the biggest maker of chip-making equipment, beat analysts' expectations for first-quarter earnings even as revenue declined 8% amid a slump in the industry.

Applied Materials shares were up nearly 4.8% to $18.93 in after-hours trading.

The company said net income dropped to $262.4 million, or 19 cents a share, from $403.5 million, or 29 cents per share, a year ago. Revenue fell to $2.09 billion from $2.28 billion. But earnings excluding stock-based compensation expenses and other charges were 23 cents per share, beating the average analyst forecast of 20 cents, Reuters said. Analysts had expected revenue of $2.08 billion, on average.

Orders in the first quarter were $2.5 billion, a 2% decline from a year-ago.

Taiwan represented 32% of the total, North America 20%, Korea 14%, Japan 12%, Southeast Asia and China 11%, and Europe 11%.

Separately, shares of biotech giant Genentech (DNA, news, msgs) were up 2.4% in after-hours trading to $71.60 after the company said that a study of the use of its cancer-fighting drug Avastin with chemotherapy showed that women who use it lived longer without seeing symptoms progressing.

Microsoft has answered, now what?

Late Monday, Microsoft (MSFT, news, msgs) responded to Yahoo's (YHOO, news, msgs) rejection of its $44.6 billion bid by calling the decision "unfortunate."

Microsoft said that it is "confident that moving forward promptly" to secure a deal is in the best interests of both companies. (Microsoft is the publisher of MSN Money.)

"Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo's shareholders are provided with the opportunity to realize the value inherent in our proposal."

• More on Microsoft's bid for Yahoo

It looks like Microsoft will have to boost the bid, Yahoo's second-biggest shareholder said today.

"We think MSFT (Microsoft) will need to enhance its offer if it wants to complete a deal," Bill Miller, the manager of the Legg Mason Value Trust (LMVTX), said in his quarterly letter to investors, which was released today. He estimated the fair value for Yahoo was around $40 a share.

Miller may want $40 a share -- a number that reportedly was bandied about when Microsoft and Yahoo talked a year ago -- but some investors want Microsoft to be careful not to overpay for Yahoo.

Legg Mason Capital Management is Yahoo's second-largest shareholder with 6.6% of the shares.

• Will one man decide if Microsoft gets Yahoo?

Prior to Microsoft's $31-per-share bid on Feb. 1, Yahoo shares had fallen more than 40% from highs in October. Chief Executive Officer Jerry Yang has talked about grand plans since taking the helm from Terry Semel last June, but results have been negative so far.

"It doesn't seem like Yahoo's other options are good," Pacific Crest Securities analyst Brendan Barnicle told Bloomberg News. "If there was a white knight, we'd have seen it by now."

Another analyst said that Microsoft CEO Steve Ballmer is appealing to disenchanted Yahoo shareholders. "The letter Ballmer wrote (with the initial offer) basically said, 'Dear shareholders of Yahoo, Would you like some of your money back? I'm prepared to give you that. Love, Steve,'" JupiterResearch's Michael Gartenberg told Bloomberg. "It's hard to see how this deal doesn't get done."

Yahoo today began to notify about 1,000 employees that their jobs are being cut. Yahoo had announced the layoffs, without specifying in which divisions they will fall, in late January.

Shares of Microsoft rose 0.5% to $28.34 this afternoon. Yahoo was down 1% to $29.57.

GM loss: $722 million in 3 months

General Motors' fourth-quarter earnings report was a mixed picture this morning. The company lost millions, but adjusted earnings still beat Wall Street's estimate. The stock fell 1.9% to $26.60.

GM lost $722 million, or $1.28 per share, a big decline from the $950 million in profit, or $1.68 per share, the company earned in the fourth quarter of 2006.

Excluding one-time costs and a massive tax benefit, GM said it earned an adjusted profit of $46 million, or 8 cents per share, well above Wall Street's estimate of a loss of 54 cents per share.

There was some puzzlement about the tax benefit. "There was no way if you are an analyst or an investor to know that General Motors was going to get a $1.6 billion tax benefit in the fourth quarter," CNBC's Phil LeBeau said this morning.

"GM doesn't give any guidance, so the consensus is really all over the place," Argus Research analyst Kevin Tynan said. "While it is probably not the profit of 8 cents per share GM reported, it is also probably not a loss of $2.77 billion, if you strip the $1.6 billion tax benefit directly out. It's somewhere in between," Tynan said.

"The per-share loss is a riveting number, but today investors are more focused on GM's cost-cutting efforts," Tynan said. GM probably won't see earnings stability and a return to profitability until 2010 or 2011, Tynan added.

The Big Three automakers have been struggling amid the economic slowdown in the U.S. and increased competition from rivals like Toyota Motor (TM, news, msgs).

Toyota has been breathing down GM's neck, inching closer to taking over as the world's No. 1 automaker, in terms of sales. In 2007, GM sold 9,369,524 vehicles, just a few thousand more than Toyota.

GM lost a record $38.7 billion for 2007. The company has reported losses for the past three years.

"Our North America turnaround remains on track despite the weak U.S. economy and continued high commodity prices," CEO Rick Wagoner said in a statement. GM's North American division reported a $1.5 billion loss in the quarter. Wagoner has said that he expects the company to turn around in the first half of this year.

One move that should help GM with its turnaround plan was an announcement by GM and the United Auto Workers regarding a second worker-buyout plan. GM is offering buyouts to all of its 74,000 hourly workers.

The automaker is now offering retirement pension incentives of $45,000 for production workers and $62,500 for skilled-trades workers, the company said. The remaining workers, about 28,000, will receive offers of up to $140,000, depending on how long they have worked at GM.

GM employs about 266,000 worldwide.

BlackBerry users in the dark

All those lawyers and investment bankers who rely on 24-hour contact through their BlackBerrys must have been pretty frustrated Monday afternoon.

Research In Motion, which makes the BlackBerry mobile device, said it experienced "intermittent delays" from about 3:30 p.m. ET to 6:30 p.m. ET Monday.

It was the second outage in the past 10 months for RIMM, knocking out service to about 8 million users in North America.

The company has about 12 million subscribers around the world.

All that glitters . . .

The timing couldn't be better for precious metals, with Valentine's Day later this week.

Gold and platinum have been soaring lately, as investors flock to safer investments amid worries about a recession in the U.S. Additionally, commodities are attractive investments as a hedge against inflation, which is still a concern.

"People are going for metals, crude oil and other commodities for fear of dollar weakness," said Ng Cheng Thye, head of precious metals markets at Standard Bank Asia, to Bloomberg News. "Platinum and palladium are particularly strong because of what's happening in South Africa."

• Middleton: Why gold is a terrible investment

Mines in South Africa have been closed because of power-supply problems, forcing miners to deliver less platinum to the markets. Platinum closed down $17.60 to $1,921.80 an ounce today. Many analysts believe the power problems will continue for a while, driving the price of the precious metal even higher.

Gold closed down 1.7% to $911.10 an ounce today after the Group of Seven officials said over the weekend that they supported a decision by the International Monetary Fund to sell some gold from its reserves.

IMF gold sales have led to some profit-taking, but TheBullionDesk.com analyst James Moore said that the price of gold will continue to climb. Moore noted in a research note that "dips are still drawing very strong buying interest," and other precious metals are also "pushing higher," MarketWatch.com reported.

Short hits from the markets -- 4 p.m.

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	2.250%	2.190%	0.060	20.32%	-28.34%
5-year Treasury note yield	2.721%	2.657%	0.064	-3.72%	-21.24%
10-year Treasury note yield	3.679%	3.618%	0.061	1.10%	-8.82%
30-year Treasury bond yield	4.464%	4.405%	0.059	2.53%	0.11%
Currencies
U.S. Dollar Index	76.460	76.735	-0.275	1.56%	-0.31%
British pound in dollars	$1.9608	$1.9516	0.0092	-1.55%	-1.43%
Dollar in British pounds	£0.5100	£0.5124	-0.0024	1.57%	1.45%
Euro in dollars	1.4592	1.4529	0.0064	-1.87%	-0.16%
Dollar in euros	€ 0.6853	€ 0.6883	-0.0030	1.90%	0.16%
Dollar in yen	¥107.24	¥106.84	0.40	0.78%	-4.12%
U.S. dollar in Canadian dollars	$1.000	$1.001	$0.0008	-0.01%	0.66%
Canadian dollar in U.S. dollars	$1.001	$0.999	-$0.0001	0.02%	-0.65%
Commodities
Gold	$911.10	$926.70	-$15.60	-1.21%	8.72%
Copper	$3.5695	$3.5635	$0.01	0.85%	17.38%
Silver	$17.2500	$17.4700	-$0.22	0.82%	15.62%
Crude oil (NYMEX) (per barrel)	$92.78	$93.59	-$0.81	1.10%	-3.33%

By Charley Blaine and Elizabeth Strott