Jan. 25 (Bloomberg) -- Ambac Financial Group Inc., the bond insurer whose shares plunged 87 percent in a year, rose today on speculation that Wilbur Ross will buy the company.

Ross, who became a billionaire by turning around distressed steel and textile businesses, is in talks to buy New York-based Ambac, London's Evening Standard reported, citing people it didn't name. A deal may come within the next two weeks, the newspaper reported on its Web site.

Ross is ``looking at'' bond insurers, which have tumbled after posting record losses on subprime mortgage securities, he said in a Bloomberg Television interview this week. Ambac's stock market value has slumped more than $8 billion in the past year, and Fitch Ratings last week stripped the insurer of the AAA credit rating it depends on to guarantee $556 billion of debt.

``If the rumor is true, it's likely to be good news,'' said Robert Doll, who oversees $1.3 trillion as chief investment officer of global equities at BlackRock Inc. in Plainsboro, New Jersey. ``Many of these troubled properties will find someone's arms to jump into at some price. We just have to figure out what those clearing prices are.''

Ambac rose 21 cents, or 1.9 percent, to $11.54 at the close of regular New York Stock Exchange composite trading, after rising to as high as $12.90 earlier in the day. Ambac said this week it is ``considering strategic alternatives'' after reporting its biggest-ever loss and scrapping plans for a capital raising.

A message left for Ross wasn't immediately returned, nor was a call to Peter Poillon, a spokesman for Ambac.

Paring Gains

Ambac shares pared early gains yesterday when the New York Insurance Department said its plan for banks to rescue bond insurers will ``take some time.'' Insurance Superintendent Eric Dinallo met with industry executives on Jan. 23.

Bond insurers lend their AAA stamp to $2.4 trillion of municipal and structured finance debt. Downgrades would throw into doubt rankings on the debt the companies guarantee, including thousands of schools and hospitals as well as collateralized debt obligations owned by banks. CDOs package pools of securities and slice them into pieces with varying ratings.

CDOs have accounted for the biggest portion of the $133 billion in writedowns and credit losses since the beginning of 2007 at more than 20 of the world's largest banks and securities firms.

Ratings Review

Fitch, Moody's Investors Service and Standard & Poor's are all reconsidering ratings on the insurers after a slump in CDOs. MBIA Inc., the world's largest bond insurer, is down 80 percent in the past 12 months.

``The market would be tremendously relieved by news that somebody's coming in and capitalizing them to get an unambiguous AAA rating,'' said John Tierney, credit strategist at Deutsche Bank AG in New York.

``We have been looking at the financial guaranty insurance companies,'' Ross, chairman of New York-based WL Ross & Co., said in a Bloomberg Television interview Jan. 22. ``They all need capital. I think one or two will likely fail but I do believe'' that it is a valid business model.

Security Capital Assurance Ltd., hobbled by deterioration in its financial guarantee portfolio, lost its AAA bond insurer grade at Fitch Ratings today, throwing the rankings of at least $154.2 billion of securities in doubt. ACA Capital Holdings Inc. had its ratings cut 12 levels to CCC by S&P last month.

Ross may start a new bond insurer, the Financial Times reported on its Web site today. Fort Worth, Texas-based TPG Inc., the U.S. buyout fund formerly known as Texas Pacific Group, also may start a guarantor, following billionaire investor Warren Buffett, who set up a company last month.

CDO Expansion

Ambac, MBIA and other insurers stumbled after expanding beyond municipal insurance into CDOs and subprime mortgages. As defaults on subprime mortgage loans accelerated, ratings companies downgraded bonds linked to the debt. The ratings companies then demanded the insurers boost their capital to cover themselves against losses.

``The industry had a very safe, long-term business, namely in municipal bonds,'' Ross said. ``That was a very straightforward, very good, solid business.''

The fourth-quarter net loss was $3.26 billion after the company wrote down the value of credit derivatives tied to loans made to homeowners with poor credit by $5.21 billion.

To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net

Last Updated: January 25, 2008 16:30 EST