The Wall Street Journal-20080131-MBIA Sags After News Of Probe

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MBIA Sags After News Of Probe

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Small-capitalization stocks declined, as a late-afternoon rally spurred by the Federal Reserve's latest interest-rate cut couldn't keep stocks out of the red.

Bond insurers led much of the late-afternoon declines after a report from Oppenheimer warned that problems for the companies could filter even more into larger financials, and Fitch cut its rating on Financial Guaranty Insurance Corp., or FGIC, to double-A.

"Do we know if things have changed for the longer term? Not really," said Bill Groeneveld, head trader at vFinance. "We still have questions about the second and third quarter and it's half and half in terms of sentiment about whether or not we'll go into a recession."

The Russell 2000 index of small-cap stocks shed 9.71 points, or 1.38%, to 695.49. The Standard & Poor's SmallCap 600 retreated 4.16 points, or 1.12%, to 365.68. The Nasdaq Composite Index dropped 9.06 points, or 0.38%, to 2349.

Among the banks falling late in the session, Sterling Bancorp (NYSE) closed down 75 cents, or 5%, at $13.64, and Prosperity Bancshares ended down 1.10, or 4%, at 27.05.

Also weighing on the bond insurers was a report from Connecticut Attorney General Richard Blumenthal that said the companies would be subpoenaed in connection with the sale of securities backed by subprime loans. Ambac Financial tumbled 2.08, or 16%, to 10.85, while MBIA sagged 2.02, or 13%, to 13.96, both on the NYSE.

One of the few stalwarts was the transport sector, especially trucking companies. YRC Worldwide rose 1.09, or 7%, to 17.32, and Arkansas Best gained 1.19, or 4%, to 30.

Earnings reports and guidance adjustments buoyed several stocks, including Overstock.com, which rose 18 cents, or 2%, to 10.89. The Salt Lake City discount online retailer narrowed its fourth-quarter loss and posted higher revenue.

Websense jumped 1.99, or 12%, to 19.09 after the San Diego Internet management products provider posted higher adjusted fourth-quarter earnings than analysts expected, as well as a 29% increase in revenue.

Wolverine World Wide tacked on 1.48, or 7%, to 23.30, on the NYSE. The Rockford, Mich., footwear maker raised its 2008 earnings outlook, which remained in line with Wall Street expectations.

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Romy Varghese contributed to this article.