MBIA (MBI) stock rose after the bond insurer fired back at its most voluble detractor, short-seller Bill Ackman. The Armonk, N.Y., company sent regulators a letter taking issue with Ackman’s scathing critique of MBIA’s books. Ackman has called for a ratings downgrade of MBIA and rival Ambac (ABK), saying they face insolvency later this year as potential losses mount in their risky credit derivatives portfolios. But MBIA shot back Thursday to the effect that Ackman’s forecast “does not take account of the structures of CDOs and our contracts that provide us protections,” and that some of Ackman’s previous loss estimates have proved faulty. MBIA also questions the transparency of Ackman’s Open Source Model, which he bills as an alternative to the rating agencies.

The back-and-forth comes as a congressional panel hears testimony on the bond insurers’ problems and how to avoid a downgrade that would damage private and public interests alike. “The problems in this market will affect many average Americans,” New York Gov. Eliot Spitzer said, CNNMoney reported. “It will affect the cost of college loans. It will affect museum budgets. It will affect state and local taxes.”

The meltdown fears don’t make it easier to assess the merits of the Ackman-MBIA debate. MBIA doesn’t help its case by pointing the finger at short-sellers who supposedly are engaged in “dangerous market manipulation,” because history shows that companies that blame the shorts tend to do so in hopes of diverting investors’ attention from their very real problems. And with house prices falling and the economy slowing, it seems only reasonable to expect MBIA and Ambac to face significant claims down the road.

But it’s also true that MBIA has managed to raise more than $2 billion in recent weeks from investors who presumably are aware of the risks facing the company. It also seems likely that the market will continue to have a need for bond insurance - which makes betting against these companies an iffy proposition.

Bond insurer MBIA (MBI) posted a steep fourth-quarter loss that will only intensify questions about its chances of fending off a ratings agency downgrade. The Armonk, N.Y., company lost $2.3 billion, or $18.61 a share, for the quarter ended Dec. 31, reversing the year-ago profit of $181 million, or $1.32 a share. MBIA did say it closed a $500 million stock sale to private equity firm Warburg Pincus, and that it is considering its alternatives for raising additional equity, including a $500 million rights offering Warburg has agreed to backstop. Given rising losses tied to the crumbling value of mortgage-related securities, it’s likely the company will have to raise more money soon to hold onto its triple-A ratings from Moody’s and S&P. Complicating those efforts, though, is a push by hedge fund investor Bill Ackman, who is short MBIA, to raise questions about the accounting practices and financial prospects of MBIA and rival Ambac (ABK). Elsewhere, S&P is forecasting banking industry losses of $265 billion on mortgage securities and collateralized debt obligations - very much the sorts of holdings that have investors worried about Ambac and MBIA. Those sorts of observations are part of what pushed both stocks to double-digit percentage losses Wednesday - and why Thursday may well bring more of the same.

Target (TGT) took it on the chin Thursday after the retailer warned that its fourth-quarter profit isn’t likely to meet Wall Street’s expectations. The company blamed soft sales at the end of November in toys and other holiday-season items, and said sales of apparel and home goods were weak as well. The news comes as investors brace for what’s looking like the weakest Christmas shopping season in years, though reports from elsewhere in retail Thursday weren’t uniformly glum.

The news comes as Wall Street awaits word of Target’s plans for its highly profitable credit card operations. Target said earlier this year it would consider selling or finding a partner for its card receivables, and the company said last month that it expected to announce a course of action by year-end. The decision to reconsider the card business — whose 2007 pretax earnings are expected to be $600 million — suggests Target has been hearing the footsteps of activist investor Bill Ackman, whose Perhsing Square hedge fund took a big stake in Target earlier this year. For his part, Ackman has been busy this week pursuing troubled bond insurer MBIA (MBI) and dangling the prospect of a public listing for his fund. But as he said of the listing notion, “the timing is not right now.” Target investors know the feeling.