Blue chips rally on Buffett

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Warren Buffett offers a plan to reinsure up to $800 billion in bonds. Play video

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Six big lenders are offering a plan to allow delinquent homeowners 30 days to work out their payment problems. Play video

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Blue chips rally on foreclosure freeze plan and Buffett's offer to bail out muni insurers Play video

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NEW YORK (CNNMoney.com) -- Blue chips rallied Tuesday as investors welcomed news that Warren Buffett has reached out to ailing bond insurers and major lenders have announced a plan that they say will help homeowners avoid foreclosure.

But a tech advance petered out by the close, leaving the Nasdaq not far from where it started the session.

The Dow Jones industrial average (INDU) gained around 133 points, up 1.1%, giving up bigger afternoon gains. The broader Standard & Poor's 500 (SPX) index added 0.7%.

The Nasdaq composite (COMP) ended little changed, after having been positive through most of the afternoon.

After the close, Applied Materials (AMAT, Fortune 500) reported lower quarterly sales and earnings that nonetheless topped forecasts. Shares jumped more than 4% in extended-hours trading.

Dow component Coca-Cola (KO, Fortune 500) reports earnings Wednesday.

Wednesday trade is likely to be influenced by the January retail sales info due before the start of trade. After the session begins, the Dec. business inventories report is due, as well as the weekly oil inventories survey.

Stocks surged through most of the session, with the Dow at one point up around 225 points. But the market was unable to sustain those gains through the close, with the tech sector and commodity stocks turning lower.

Treasury prices slipped, raising the corresponding yields. The dollar was mixed versus other major currencies. Oil and gold prices fell.

Wall Street reacted favorably to news that Buffett has thrown a lifeline to bond insurers and that delinquent homeowners might get some help from the major mortgage lenders, as it helped ease fears about the economic outlook.

These developments don't necessarily solve the problems in these areas, but they do give people hope that these issues can be contained, said Matt King, chief investment officer at Bell Investment Advisors.

"We're in a market that's volatile and moving on emotion, so when there's news that calms investor nerves, even just for the short term, you'll see a positive reaction, like today," King said.

On the flip side, news that adds to worries will send stocks right back down, he said.

"I think we're going to be volatile and range bound at least through the second quarter," King said. "We're really going to need to see what growth was like in the first quarter after it fell off a cliff in the fourth-quarter of last year."

An afternoon report showed that the Jan. Treasury budget rose less than expected. However, the budget deficit is more than double what it was a year ago in the four months since October, which starts the fiscal budget year.

Buffett reaches out to bond insurers. Berkshire Hathaway chairman and CEO Warren Buffett has offered to insure about $800 billion in tax-exempt bonds, according to reports Tuesday. 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. Late Tuesday, Ambac said it rejected the offer.

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 moderated, reassuring investors.

But critics argue that the deal is better for Berkshire Hathaway than for the bond insurers and shares of both MBIA and Ambac declined.

Regardless, other financial stocks rallied on the news, leading a broader stock market rally until the 11th hour weakening.

Stocks staged a late-session advance Monday as investors looked past worries about AIG's financials and news that Yahoo had rejected Microsoft's proposed takeover. The momentum from that advance also likely added to Tuesday's big rally.

A plan to aid homeowners. In other news, six mortgage lenders have temporarily halted foreclosure proceedings against delinquent homeowners as part of a joint effort with the government to address the fallout from the housing market crisis.

Under the new program, borrowers will be given an additional 30 days to work out new payment plans with the lenders. However, loan modifications are not automatically given and any terms reached are provisional. (Full story)

Eye on the Fed. Separately, the Federal Reserve said it has auctioned $30 billion in funds to commercial banks in the fifth in its series of auctions that have added $130 billion to the banking system. The central bank has been adding money to the financial system as a means of combating the credit crisis.

The Fed has also cut interest rates five times since September, including twice at the end of January, so as to protect the economy from falling into recession amid the credit and housing market crises.

Stocks on the move. 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 ended lower, giving up gains. (Full story).

Overall, 24 of the 30 Dow components gained. The biggest advancers were AIG (AIG, Fortune 500), Boeing (BA, Fortune 500), DuPont (DD, Fortune 500) and Merck (MRK, Fortune 500).

Market breadth was positive. On the New York Stock Exchange, winners topped losers by more than three to two as 1.53 billion shares changed hands. On the Nasdaq, advancers topped decliners by four to three on volume of 2.21 billion shares.

Other markets. Treasury prices fell, raising the yield on the benchmark 10-year note to 3.66% 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 81 cents to settle at $92.78 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $15.60 to settle at $911.10 an ounce.