Most Dow Stocks Up After Buffett 'Band-Aid'

Stock rose Tuesday after billionaire investor Warren Buffett offered a reinsurance plan to troubled bond insurers and top mortgage lenders unveiled a plan aimed at freezing foreclosures.

The Dow Jones Industrial Average was up nearly 200 points, with most of 30 Dow stocks advancing. The broader S&P 500 index and tech-heavy Nasdaq also rallied.

Six major banks announced Tuesday a program to identify seriously delinquent borrowers and halt any foreclosure process while they try to work out a new payment scheme. The program comes as hundreds of thousands of borrowers across the country face rising rates on their adjustable-rate mortgages.

The banks are Washington Mutual , Bank of America , Wells Fargo , JPMorgan Chase , Citigroup and Countrywide Financial .

Meanwhile, Buffett told CNBC that he has offered leading bond insurers a plan in which he would reinsure some $800 billion in municipal bonds, effectively guaranteeing them a AAA credit rating. Buffett extended his offer to Ambac , MBIA and FGIC and is giving them 30 days to make a decision, though he said that he was rebuffed by one of the companies.

Project Lifeline, as the bank plan is called, and Buffet's offer are "initially acting as a band aid today and helping the market out," said Ryan Detrick of Schaeffer’s Investment Research. But, the big problems are still out there, Detrick noted, and given how oversold the market is, "It really does appear to us that it is more of a relief rally," he said. "The market is looking for any news to bounce."

Buffet may have boosted the market, but shares of bond insurers declined amid concerns that, under Buffet's plan, they would be left with a portfolio of riskier debt including CDOs.

Buffet made it clear that his offer was aimed at making a profit, not "pro bono" work. Still, he came under fire.

"If he wants to be such a great guy, take over the best portion of the business and the worst portion of the business," Robert Pavlik, of Oaktree Asset Management, told CNBC. "Don't try to just rescue the luggage."

"Mr. Buffet has, very wisely, both a PR victory and an economic victory if it comes off," Art Cashin, director of floor operations for UBS, told CNBC, "because he's only gonna insure the municipal side -- that's not the threatened side of those portfolios."

Cashin says he thinks a retest of recent market lows is still in order. If that happens, he says, it will give investors a reason to buy back into the market.

Also offering encouragement to a skittish market was St. Louis Federal Reserve Bank President William Poole, who said the U.S. is likely to avoid recession. Speaking to the St. Louis chapter of the National Association for Business Economics, Poole said Fed interest-rate targets are in a good position to steady the economy amid slowing growth and market turbulence.

Insurance stocks rebounded, with the S&P insurance index up nearly 3 percent. The sector took a pounding Monday after AIG , the world's largest insurer, announced that auditors were questioning the firm's valuation of risky debt and Credit Suisse's earnings report raised concerns about the bank's financial performance for the current year.

AIG, whose shares hit a five-year low Monday, said Tuesday that potential losses on a derivates portfolio aren't significant.

General Motors shares, the Dow's top gainer on Monday, advanced, even as the auto maker delivered a worse-than-expected earnings report. GM posted an adjusted profit of $46 million, or 8 cents a share, but that included a $1.6 billion tax benefit that GM chairman and chief executive Richard Wagoner, Jr., said analysts didn't know about.

The No. 1 U.S. auto maker also reached an agreement with the United Auto Workers to offer a buyout to all of the union's 74,000 member employees.

In the  tech sector, Electronic Arts shares rose about 5 percent after the U.S. videogame publisher said it expects revenue to surge to more than $6 billion in fiscal 2011, a 53 percent increase from the $3.9 billion analysts expect in fiscal 2008.

The plot thickens in the Micro-hoo battle. Rumors are swirling that Yahoo is reaching out to AOL for some sort of alliance as a defense against Microsoft's $44 billion takeover bid, which Yahoo rejected on Monday. The Times of London suggested Monday that Yahoo may be mulling alliances with other companies, including Google