Stocks Hit Reverse, Rise on Ambac News

Stocks reversed what had been a down session Friday, with the Dow Jones Industrial Average and S&P 500 rising after a CNBC report that progress is being made on a recapitalization plan that could save troubled bond insurer Ambac Financial's triple-A rating.

The market was led upward by financial stocks after the Ambac report -- despite the banking sector having led stocks lower all day.

A consortium of banks, which includes Citigroup and Wachovia, could announce the Ambac deal as early as Monday or Tuesday. Although the structure of the deal is still uncertain, sources indicated to CNBC that the deal could include both equity infusions and lines of credit.

Prior to the final hour of the holiday-shortended week's trading, investors continued to fret about the ongoing credit crunch. Credit fears were stoked, in part by, Merrill Lynch's downgrade of government-sponsored mortgage provider Freddie Mac, which it cutto "sell."

Freddie shares finished the day down more than 4 percent, while Fannie Mae stock declined almost 1 percent.

Citigroup shares came under pressure earlier in the day's trading after Meredith Whitney, executive director of CIBC World Markets, told CNBC the banking giant needed to cut its dividend, having been the first to say last year that Citigroup needed to reduce its payouts.

"As Citigroup becomes so challenged from an earnings perspective, its pay-out ratio will exceed 70 percent, and that is imprudent for a board to authorize," Whitney told "Closing Bell" Thursday.

But the bank's shares wound up regular market hours up marginally.

Among the day's losers, Sovereign Bancorp , lost almost 5 percent after an analyst downgraded shares of the bank following the resignation of Chief Financial Officer Mark McCollom.

Outside the financial sector, Intuit shares slid. The tax preparation software company posted lower quarterly profit late on Thursday, sending its shares plummeting more than 9 percent.

Natural gas distributor Nicor gave an earnings outlook below analysts' estimates, citing continued demand weakness and operating cost pressure.

A disappointing outlook also knocked down shares of United Natural Foods , which plummeted more than 24 percent. The natural and organic food distributor cut its 2008 profit target and said benefits from an acquisition are coming slower than expected.

Cbeyond , an Internet-based phone and data services company, forecast its revenue for this below expectations and said consumers are struggling in a weak economy, whacking the company's shares, which fell more than 20 percent.

Shares of Dow Jones Industrial Average component General Motors were heavily traded. The company's stock fell after Standard & Poor's Ratings Services cut its rating for GMAC Financial Services, which the auto maker partly owns.

In other corporate news, Delta Air Lines and Northwest Airlines' faced further set backs in their plans to become the world’s biggest carrier, as Northwest may be forced to repay $245 million in outstanding debt on bonds that Minnesota's Metropolitan Airports Commission issued on its behalf.