Hopes that a possible rescue plan for troubled Ambac Financial Group, the second largest U.S. bond insurer, would help limit the damage from the ongoing credit crisis bolstered investor confidence. Dresdner Bank, part of insurer Alliance, intends to support a rescue package for Ambac, the bank said on Monday.
Ambac, known as a monoline insurer that insures municipal bonds as well as other forms of debt, is facing billions of dollars of expected losses from guaranteeing repackaged subprime mortgages. A rescue plan may be announced on Monday or Tuesday, a person familiar with the matter told Reuters.
The worry is that a ratings downgrade for Ambac would force investors to sell billions of dollars of securities and lift borrowing costs for consumers and U.S. city governments, adding further strain to an already slowing U.S. economy.
Early morning in New York, the dollar was up 0.5 percent against the Japanese currency at 107.72 yen, while the euro rose to a six-week high of 159.92 yen before trimming gains to 159.62, up 0.4 percent.
The euro eased 0.1 percent to $1.4815, taking a breather after hitting a three-week peak of about $1.4862 on Friday.