A broad-based rally by US stocks lost much of its steam in late trading on Tuesday as doubts emerged about a plan by billionaire investor Warren Buffett to take over $800bn in municipal bonds covered by troubled bond insurers.

Financial stocks surged early in the session on hopes that the intervention would help calm fractious credit markets but the gains were later cut in half as analysts said the move would do nothing to solve bond insurers’ exposure to risky structured credit products.