US STOCKS-Buffett's bond insurer plan lifts Wall Street

NEW YORK (Reuters) - U.S. stocks roseTuesday, as optimism about a possible rescue plan for bond insurers fueled gains among financial shares, including Citigroup.

Billionaire investor Warren Buffett said he had made a pitch to the three largest bond insurers to reinsure $800 billion in municipal bonds.

The S&P financials index rose 1.1 percent, led by a 2.4 percent gain in Citigroup.

Solid earnings from agricultural company Monsanto and drugmaker Schering-Plough added to investor optimism.

"Warren heading to the rescue here for the muni bond business -- that gets people excited and that's why we're rallying," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

"There's nothing any deeper than that. The CDO (collateralized debt obligations) exposure is obviously not going away. Buffett wouldn't touch that stuff. He's trying to help the business that is extremely profitable."

The Dow Jones industrial average was up 89.34 points, or 0.73 percent, at 12,329.35. The Standard & Poor's 500 Index was up 9.50 points, or 0.71 percent, at 1,348.63. The Nasdaq Composite Index was up 14.61 points, or 0.63 percent, at 2,334.67.

St. Louis Federal Reserve Bank President William Poole said late on Monday the United States appears likely to avoid a recession.

Monsanto Co shares rose 4.3 percent to $118.92 after the company raised its 2008 earnings forecast , while Schering-Plough rose 5.2 percent to $21.69, after it posted results that exceeded Wall Street estimates.

Buffett, who is chairman and CEO of Berkshire Hathaway , told business news television channel CNBC that he had made the offer to MBIA Inc, Ambac Financial Group and FGIC.

Bond insurers shares fell, as under Buffett's plan -- which included a 30-day clause to allow bond insurers to come up with a better deal -- the companies would be left with a portfolio of riskier debt including CDOs.

Ambac shares fell 1.3 percent to $10.62, while MBIA fell 6.6 percent to $12.69. (Additional reporting by Ellis Mnyandu; Editing by James Dalgleish)