NEW YORK (Bloomberg) — US state and local governments sold a smaller portion of bonds with insurance during the first full week of 2008 than they did last month, as several insurers seek to raise capital to defend their AAA ratings.

Bonds guaranteed by Financial Security Assurance Inc., Bermuda-based Assured Guaranty Corp. and other companies made up 27 percent of $4.2 billion sold last week, preliminary figures compiled by Bloomberg show. The insured proportion of new municipal issues during December was 30 percent, the lowest level since the early 1990s, Morgan Stanley said in a January 8 report.

Insurers' coverage of sub-prime-linked debt has prompted ratings services to place negative assessments on five of the seven AAA firms. FSA and Bermuda-based Assured Guaranty, whose ratings are stable, "have essentially become the new benchmark" for investors. Bonds they back generally command lower yield premiums than their rivals, Citigroup Inc. said on January 4.

Financial Security Assurance, a New York-based unit of Brussels-based Dexia SA, backed almost 62 percent of the insured municipal bonds sold during the past week, according to Bloomberg data. Bermuda-based Assured Guaranty Ltd.'s insurance unit wrote policies on 30 percent of the total, with other companies backing the rest.

Full-year figures released by Thomson Financial today show Financial Security Assurance held onto its first-place standing among companies insuring new municipal issues in 2007, boosting its market share to 22 percent on $48.3 billion in bonds, from 21.9 percent in 2006.

Ambac Assurance Corp. and MBIA Insurance Corp. were second and third, respectively, the same as 2007, with more than $46 billion each, Thomson said. Assured moved up to No. 7 with a 1.7 percent market share from eighth in 2006 and 0.8 percent of the market.

Insured bonds represented 46.4 percent of last year's $424.5 billion in long-term municipal issuance, excluding private placements, down from 49.7 percent in 2006, based on Thomson data.