Standard & Poor’s worked like a tonic on the stock market with its announcements of holding fire on bond-insurers MBIA and Ambac. But it had no such reassurance for another of their ilk if a $3 billion salvage operation doesn’t come through.

US share prices staged a late rally on Monday after Standard & Poor’s affirmed the top-notch credit ratings of beleaguered bond insurers MBIA and Ambac and said MBIA was no longer at risk of a downgrade.

However, S&P indicated that it could still downgrade Ambac, depending on the outcome of behind-the-scenes talks now being conducted between banks and rating agencies on a $3bn rescue plan for the bond insurer.

US stocks, which had been modestly higher on the day, rallied later on the S&P announcement, with the S&P 500 index closing up 1.4 per cent. MBIA shares gained 19.7 per cent. Ambac rose 15.9 per cent.

In a letter to shareholders MBIA, the biggest monoline, on Monday outlined its plans, saying it would stop writing new structured finance business for about six months and eliminate the quarterly dividend. It confirmed it would restructure the company to separate the municipal guarantee business from the structured finance business within five years. MBIA has raised $2.6bn in extra capital.

A group of eight banks, led by Citigroup and UBS, is preparing to inject up to $3bn into Ambac, the second-largest bond insurer. The money would be part of a plan to split Ambac’s operations into a triple-A rated municipal bond business and a structured finance business with slightly lower ratings.

A downgrade of Ambac would potentially lead to downgrades on $550bn of bonds that it guarantees. Banks could be affected because a downgrade could reduce the value of Ambac guarantees on collateralised debt obligations and derivatives trades, such as credit default swaps.

MBIA, the largest bond insurer, has raised $2.6bn in additional capital, more than Ambac has attracted so far. MBIA is also discussing ways to restructure its business to ensure its ratings are not cut by Moody’s, which still has the bond insurer on watch for downgrade.

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