LONDON (ShareCast) - The half point cut in interest rates announced by the Fed, though expected, provide a short term boost to equities but the market soon resumed its downward trajectory on revived concerns about the bond insurance sector.

Bond insurers Ambac and MBIA led the way down after Fitch Ratings cut the credit rating for Financial Guaranty, the fourth largest bond insurer, by two levels to AA. Fitch said the downgrade was prompted by Financial Guaranty failing to raise new capital “within a timeframe consistent with Fitch's expectations.”

Fitch has already downgraded the rating of Ambac’s insurance arm, while both Ambac and MBIA are under review by credit ratings agencies Moody’s and Standard & Poors. The loss of confidence in the bond insurers could spark another round of write-downs in the financial sector.

The news choked off a mid-afternoon rally and sent the major indices sharply into reverse. The S&P Composite declined 6 points to 1,355 while the Dow-Jones Industrial Average retreated 37 points to 12,442. The NASDAQ Composite shed 9 points to close at 2,349.

Company results generally added to the downbeat mood.

Internet search portal Yahoo! was in the doldrums all day as the market got a chance to react to its results released after the close of trading yesterday. The fading web titan announced plans to shed 1,000 jobs as it continues to lose market share to Google and now also has to face up to the prospect of a slowdown in online advertising this year.

Drugs company Merck, currently embroiled in a controversy about one of its anti-cholesterol pills, fell back after taking a $4.85bn hit in its fourth quarter results for legal costs relating to its withdrawn painkiller Vioxx. Merck swung into loss in the fourth quarter, losing $1.63bn. Excluding the Vioxx charge, earnings per share came in 7 cents higher than market consensus at 80 cents.

Photography giant Eastman Kodak tumbled despite posting its third consecutive quarterly profit. Net profit from continuing operations in the three months to end-December was $92m, versus a loss on the same basis of $15m in the final quarter of 2006.

Merrill Lynch got the downgrade treatment from Oppenheimer, which said the broker has most to lose among investment banks and brokerages if a new wave of write-downs is triggered by the downgrading of the bond insurers by credit rating agencies.

Oilfield services group Baker Hughes saw its share price pummelled after the company’s fourth quarter earnings per share came in 2 cents lower than market expectations at $1.26 a share.

In contrast, aircraft maker Boeing was flying high after it exceeded analysts’ estimates with its fourth quarter earnings. Fourth quarter earnings rose to $1.03bn from $989m a year earlier. Earnings per share (EPS) climbed to $1.36 from $1.29 in the fourth quarter of 2006. Analysts had been expecting EPS of $1.32.

United Parcels unwrapped disappointing first quarter results in which earnings per share came in 5 cents below market consensus at 98 cents per share. The company also advised that 2008 earnings growth will be at the low end of its original forecast.

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