Sector Snap: Bond Insurers

Ambac shares rose $1.42, or 31.1 percent, to $5.98 in late afternoon trading. The stock is off 82.3 percent since the start of the year.

Meanwhile, shares of MBIA advanced 97 cents, or 9.4 percent to $11.29. MBIA shares have ranged between $3.62 and $68.98 over the past year, and are off 44.6 percent since the start of the year.

Both MBIA and Ambac's critical financial strength ratings were removed from a negative watch by S&P, but remained on a negative outlook.

A negative credit watch means there is a 50 percent chance of a ratings downgrade within three months. The negative outlook means there is a one in three chance of a downgrade over the next two years.

S&P cut both Ambac and MBIA's financial strength ratings earlier in the year to "AA" from "AAA," the highest rating available. Maintaining strong financial strength ratings is important for bonds insurers ability to generate new business.

Most bond insurers' ratings have been cut since late 2007 due to uncertainty around a potential spike in claims. Ratings agencies and investors have worried bond insurers might not have enough spare capital to handle an expected surge in claims tied to potential defaults on bonds backed by mortgages and other structured finance products.

Mortgages have increasingly defaulted over the past year, leading to expectations that bonds backed by the troubled loans would default as well. Insurers covering those bonds would then be on the hook to pay principal and interest if there is a default.

Elsewhere among bond insurers, shares of Assured Guaranty Ltd. jumped 61 cents, or 4.3 percent, to $14.69.

Shares of Syncora Holdings Ltd., which was formerly known as Security Capital Assurance Ltd., gained 20 cents, or 8.7 percent, to $2.50.