Stock rally accelerates

NEW YORK (CNNMoney.com) -- Stocks surged Tuesday morning as investors took comfort in news that Warren Buffett has reached out to ailing bond insurers, and that 6 mortgage lenders are looking to help homeowners avoid foreclosure.

Nearly 90 minutes into the session, the Dow Jones industrial average (INDU) gained close to 200 points, or 1.6%, while the broader Standard & Poor's 500 (SPX) index rallied 1.5%. The Nasdaq composite (COMP)rose 1%.

Stocks staged a late-session advance Monday as investors looked past worries about AIG's financials and news that Yahoo rejected Microsoft's proposed takeover.

That rally continued Tuesday morning as investors welcomed the news from Buffett, the Berkshire Hathaway chairman and CEO, who has offered to insure about $800 billion in tax-exempt bonds. The offer was made to the three big bond insurers, MBIA (MBI), Ambac Financial (ABK) and FGIC.

Buffett said one firm already rejected the offer and the other two had not responded.

The latest credit crisis worry has been that the credit ratings agencies will cut the top financial strength ratings for the bond insurers due to a lack of funds, and that this will make it harder for the companies to draw new business. Additionally, it could trigger another wave of big writedowns for the big banks.

Regulators appear to be working on a package to bail out the insurers, and Buffett's proposal seemed to further sentiment that a big fallout in the sector can be avoided or contained, reassuring investors.

In other news, six mortgage lenders are reportedly set to announce a plan that would help delinquent homeowners avoid foreclosures for 30 days while an attempt is made to work out more affordable loans.

In earnings news, General Motors reported better-than-expected quarterly results. But it also indicated that it needs to keep cutting costs by offering buyouts to 74,000 employees, its entire U.S. hourly workforce. GM (GM, Fortune 500) shares gained around 2%. (Full story).

Including GM, all 30 Dow components gained. The biggest advancers were American Express (AXP, Fortune 500), Boeing (BA, Fortune 500), Citigroup (C, Fortune 500), DuPont (DD, Fortune 500), JP Morgan Chase (JPM, Fortune 500).

Market breadth was positive. On the New York Stock Exchange, winners topped losers 3-to-1 as 380 million shares changed hands. On the Nasdaq, advancers topped decliners by more than two to one on volume of 600 million shares.

Other markets. Treasury prices fell, raising the yield on the benchmark 10-year note to 3.7% from 3.61% late Monday. Bond prices and yields move in opposite directions.

In currency trading, the dollar fell versus the euro and gained against the yen.

U.S. light crude oil for March delivery fell 39 cents to $93.20 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $3.40 to $923.30 an ounce.